Optimal medical treatment under asymmetric information

A model is developed of patient-doctor interaction under asymmetric information. It examines how both the probability of consulting and initial health status are semi-endogenously determined by a potential patient determining a threshold health level, below which he demands a consultation. It is shown that the demand elasticity with respect to socio-economic variables is lower the more severe the illness. The paper also offers a model of the supply side. A distinction is established between uncertainty and asymmetric information between the patient and the doctor. After deriving the conditions for an equilibrium of the patient-doctor interaction, payment systems for achieving medical 'adequacy' and Pareto efficiency are analysed.