Medical Malpractice: Theory, Evidence, and Public Policy

Abstract

Every few years, a new round of malpractice insurance premium increases occurs, and there are renewed pressures on public officials to "do something about the malpractice insurance problem."Although there is no consensus about the causes of the problem, views about the causes are strongly held.The views often depend on where the observer stands, and there is a regrettable tendency to identify a single culprit-"greedy lawyers" paid on a contingent fee, "careless doctors," "litigious patients," or "greedy insurers."Unfortunately, little is really known about the causes of the malpractice insurance crises and about the efficacy of alternative policy options.In part, lack of knowledge is the result of inadequate data-but there are also few serious theoretical studies on malpractice issues.Research by Patricia Danzon, sometimes with coauthors, is an exception to this generalization about lack of useful studies.Her theoretical, empirical, and policy analysis in the malpractice area is imaginative and careful, making good use of best-practice economic techniques.Much of her work has been technical and is inaccessible to many noneconomists.Although Danzon's most recent book does not break much new ground, it is a welcome summary of much of her past research on malpractice, written and organized in a form that will be accessible to readers outside her field.Danzon's theoretical analysis, both positive and normative, is based on the economist's neoclassical model.Each party in the transaction maximizes his or her well-being subject to constraints.Information is often difficult for patients to obtain.Because of asymmetric information, the doctor may be well positioned to take advantage of the patient; making the doctor liable for compensation in cases of injury due to negligence is one mechanism, albeit an imperfect one, for protecting the patient against abuse.It is also possible for doctors to be too cautious, that is, to provide too much preventive care.The same neoclassical paradigm states that an efficient outcome is one that results in the sum of four types of costs being minimized-insured losses, uninsured losses, prevention cost, and overhead (cost of litigation, insurance overhead).Thus, a dollar of prevention is only

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