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The first is the patient factor. This includes a patient's health status, demographic characteristics and economic status. The second is the physician factor. This is an interesting topic because it introduces the principal (patient)-agent (physician) problem. We are faced with the problem of diminishing marginal returns for health. At a certain point, we can only produce so much health. The question we need to ask ourselves is what is the optimal budget for medical care? This is a question that can not be easily answered due to our changing demand for medical care. If we get sick we demand more medical attention...
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