Incentives, Informational Economies of Scale, and Benchmarking

In this paper, we analyze the problem of providing incentives when there are more than one project. A principal has access to two (possibly correlated) projects which are managed by a single agent. Before undertaking a project, the agent-manager can spend some resources to investigate its quality, namely its probability of success. Only projects with a high probability of success are profitable, and therefore should be invested in. There are two classes of strategies. First, the manager may investigate only one project to save on investigation costs, but still use the acquired information to make an investment decision on the noninvestigated project. Second, the manager could investigate both projects, and make the investment decision based on the acquired information on each project. Comparing these two strategies, it would seem that the more correlated are the projects, the better it is to investigate only one project and use the acquired information to learn about the other project. And, when correlation is low, both projects should be investigated. There is, however, a third strategy that the principal could use. He could hire two agents, each managing one project. By making each agent's compensation dependent on the outcome of the project of the other agent, the principal creates some form of competition between them. When projects are highly correlated, endogenous competition provides incentives but duplicate investigation costs, while having one manager investigating only one project exploits informational economies of scale by economizing on investigation costs, but does not always yield the best investment decision since information on the noninvestigated project is not perfect. We assume that the investigation decision is private to the manager (moral hazard), as well as the information obtained doing so (adverse selection). We then show that the optimal structure depends, among other things, on the degree of correlation between the returns of the two projects. In general, delegating to one manager and investigating both projects is optimal when the projects are weakly correlated; delegating to two managers is optimal for intermediate values of the correlation coefficient, while delegating to one manager and investigating only one project may be optimal when projects are strongly correlated, depending on parameter values. We show that, for some parameter values, it may never be optimal to delegate to one manager and investigate only one project, and this even when projects are perfectly correlated. Endogenous competition is then optimal as it minimizes the cost of providing incentives to the managers, even though investigation costs are duplicated. In that case, delegating to two managers becomes optimal for intermediate and high values of the correlation coefficient.

Une application de l'étalonnage concurrentiel aux contrats de rémunération

Numéro de référence interne originel : a1.2 g 39

Determinants of Direct Cost Differences among US Employees with Major Depressive Disorders Using Antidepressants

Objective: To understand factors driving the economic burden of major depressive disorder (MDD) patients with different treatment regimens, by evaluating the relationship between medical profiles and treatment costs. Abstract: Methods: Claims data for US privately insured employees (1999-2004) were analysed. Analysis included adult employees with ≥1 diagnosis of MDD and ≥1 prescription for specific antidepressants following a 6-month washout period. Patients were first classified into treatment pattern groups (switchers/discontinuers/maintainers/augmenters), then stratified into mutually exclusive treatment groups - nonstable, stable and intermediate - based on evidence of stability in treatment therapy. Rates of mental and physical co-morbidities, injuries/accidents, substance abuse and urgent care use were analysed across treatment pattern groups. Direct (medical/drug) costs were calculated per patient per year and disaggregated into depression- and non-depression-related components. A two-part multivariate model controlled for baseline characteristics. Costs were also estimated for patients with MDD only, patients with MDD and generalized anxiety disorder (GAD), and patients with MDD and any type of anxiety. Abstract: Results: Annual per patient adjusted costs (year 2005 values) were significantly lower among stable patients (&dollar;US6215) than among intermediate (&dollar;US7317) and nonstable patients (&dollar;US9948; p < 0.001). Stable patients also had lower depression- and non-depression-related costs. Patients with MDD and comorbid GAD or any type of anxiety had significantly higher costs than MDD-only patients. Abstract: Conclusions: Nonstability of treatment is associated with higher comorbidity rates, more urgent care use and higher total, depression- and non-depression-related direct costs. The stable group represents continuity of care and is associated with significant cost savings. Co-morbidities are associated with increased costs.