@manuascript {4220,
	title = {Provider Strategic Behavior in the Global Budget System},
	journal = {Working Paper},
	year = {2010},
	note = {Thesis Draft, Paper 1},
	month = {06/2010},
	type = {Working Paper},
	address = {Cambridge, MA},
	abstract = {Given the increasing pressure of health expenditure growth in recent decades, global budget payment has become an important policy option to contain health care cost. This paper presents a theoretical analysis of the incentive structure of the global budget system as well as the strategic behavioral response of the providers. I argue that global budget is a type of common-pool resources (CPR) and therefore presents the providers a social dilemma, in which the individual and group interests conflict. Under a bounded rationality framework, the analysis shows that as the payment system shifts from fee-for-service to global budget, the providers would first engage in a non-cooperative competition where the providers pay more attention to services with higher price-cost ratios. The resulting volume race would lead to a vicious circle of working harder but declining profits. However, in the awareness of the need for collective action, the providers could, with varied levels of success, overcome {\textquotedblleft}the tragedy of the commons{\textquotedblright} by engaging in cooperative competition, which poses a different set of financial incentives than the earlier phase and could result in structural changes of the health care market in the long-run. Implications for empirical testing are then discussed. },
	author = {B. Chen}
}
