Scandinavian Working Papers in Economics

HERO Online Working Paper Series,
University of Oslo, Health Economics Research Programme

No 2007:5: Optimal prevention when informal penalties matter: The case of medical errors

Sverre Grepperud ()
Additional contact information
Sverre Grepperud: Institute of Health Management and Health Economics, Postal: P.O. Box 1089 Blindern, NO-0317 Oslo, Norway

Abstract: Individuals often respond with strong emotions to being penalised. Such responses suggest that informal penalties are important and play a role in creating deterrence. In this paper informal penalties are analysed in the context of medical errors. The introduction of informal penalties, if dependent upon formal ones, implies that: (i) the optimal enforcement regime becomes more lenient, and in some cases the lack of formal punishment is preferred, (ii) the first-best solution becomes unattainable, (iii) liability rates and formal penalty level are no longer perfect deterrence substitutes. In addition, powers of informal penalties provide a rationale for administrative sanctions (informal criticism, reprimands and warnings).

Keywords: Iatrogenic injury; enforcement; administrative sanctions

JEL-codes: D64; I18; K32; K42

32 pages, June 3, 2009

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