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DESIGN OF INCENTIVES IN COMMUNITY BASED HEALTH INSURANCE SCHEMES

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Many of the early compliance models assumed that audits were expensive but that penalties could be imposed at low cost to the enforcing agency once an error had been detected. It is not surprising that those models typically showed that, subject to a fixed-budget constraint, the combination of high penalties and low audit rates was socially optimal (McCubbin, 2004). Those results are sensitive to several underlying assumptions. First, feelings about risk vary from one group to another; younger people, for example, could be less risk-averse than older people are. Second, penalties are not imposed without cost

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