Assume five treatments exist to treat patients with a particular intestinal disorder. The expected health benefits (measured in dollars) from each treatment and the providers cost of providing each treatment is listed in the table below.

Throughout this question, assume that physicians (not patients) determine the choice of treatment and that patients are fully insured. Also, assume physicians value the health of their patients half as much as their patients do.

a)Which is the efficient treatment for this patient?

b)Suppose physicians are paid an amount equal to the cost of treatment for whichever treatment the physician chooses to provide. Which treatment will the physician choose? Explain.

c)Suppose physicians are paid an amount equal to 110% of the cost of treatment (i.e. physicians earn a 10% profit margin). Which treatment will the physician choose? Explain.

d)Suppose physicians are paid a fixed payment (of $12,000) whenever they treat a patient with this condition regardless of the treatment they choose. Which treatment will the physician choose? Explain.

e)Suppose physicians are paid a fixed amount (say $6000) plus one-half of the treatment cost for whatever treatment is delivered. Which treatment will the physician choose? Explain.

Treatment Health Benefit to Patient (WTP, in S1000s) 12 20 Treatment Cost (in $1000s) 10 20 25 35 28 27