We present a model of optimal contracting between a purchaser and a provider of health services. We assume that providers can increase demand by increasing quality but can also inflate activity through a manipulative effort (upcoding or DRG creep). We derive and compare the optimal price and...

Performance indicators are increasingly used to regulate quality in health care and other areas of the public sector. We develop a model of contracting between a purchaser (principal) and a provider (agent) under the following scenarios: a) higher ability increases quality directly and...

We model purchaser–provider contracts when providers can inflate reimbursable activity through manipulation. Providers are audited and fined upon detected fraud. We characterise the optimal price and audit policy both in the presence and absence of commitment to an audit intensity. Under...