Firstly, they arise under competitive pressure in markets with asymmetric
information. Incentives can be provided by patients themselves or by their
trusted agents, like third-party payers (Lesser and Ginsburg, 2006). Akerlof
(1970) revealed that this pressure often brings private problem solving (e.g.
guarantees). In such a consumer-driven system, providers have strong incentives
to signal their quality (and efficiency) to patients or to patients’ trusted agents,
such as medical insurance companies. Obviously, bad-quality providers will be
less frequently chosen. If there are private solutions, there is no need for direct
regulation, which is the second type of setting. Here we have to distinguish
between merely setting up a regulatory framework and its application. The latter
refers both to designing regulatory mechanisms and sanctions for rule breaking.
In applying regulations, four questions have to be answered with regard to
assigning competencies. Who is responsible for (a) setting up the regulatory
framework, (b) designing regulatory details, (c) providing quality information,
and (d) applying sanctions on providers that do not fulfil regulatory requirements?
In general, the actors involved should be close to and well informed
about the problem (i.e. low measurement costs) and also have strong incentives
to find solutions.