ALTERNATIVE LIABILITY REGIMES FOR MEDICAL INJURIES - EVIDENCE FROM SIMULATION ANALYSIS

An optimization model of physician choice of patient care under altern ative liability regimes yields estimates of frequency of patient injur y, liability insurance coverage, and utility of patients and physician s. Results are sensitive to assumptions about the physician's altruism (agency), productivity, cost and revenue functions, and experience ra ting. For a physician caring only about own wealth and leisure, the mo del confirms conventional conclusions. But for a partially altruistic physician, increasing physician liability can decrease patient care an d increase injury rates. Effects of liability depend critically on the productivity of care, physicians' opportunity cost of time, and form of reimbursement (capitation or fee-for-service).