Hospital-Physician Contracting with Social Preferences

Abstract The impact of social preferences along with institutional efficiency of the hospital are explored on the optimal contract between the hospital and the physician where the physician’s effort is non-contractible. We show that the hospital may benefit from employing a more ‘social-regarding’ physician and might also benefit if the physician is more inequity-averse. The physician on the other hand benefits if she is attached to a more socially conscious hospital. Optimal health care increases with physician’s social-regarding altruism and hospital’s social consciousness.