Summary:
Social conflicts (such as physician-patient disputes, labor disputes, and debt disputes) can undermine effective social development. Economic theory suggests that incomplete contracts are an important source of social conflict, and the conflicts themselves can be regarded as unhedged financial risks (incomplete markets). Policy-wise, financial innovation (like insurance) can complete a market, resolve conflict, enhance social harmony, and achieve Pareto improvement. However, no “smoking gun” evidence for this important theoretical idea has been offered, due to the lack of sufficient policy counterfactuals. In this study, we regard social conflict such as disputes as a risk state and leverage the unique and appropriate quasi-natural experiment of the gradual implementation of compulsory medical liability insurance in China. We draw on the provincial medical damage liability dispute data published by both “China Judgements Online” and the “Magic Weapon of Peking University” (beida fabao) from 2011 to 2019. We apply a multi-period difference-in-differences (DID) method to identify the causal effects and mechanism of liability insurance on physician-patient disputes, to test how financial innovation such as insurance can resolve social conflicts by enhancing social trust. This helps to make contracts and markets more complete, improve efficiency, and promote social harmony. The empirical results show that the average number of medical disputes per 10,000 inpatients, as obtained from the two databases, decreases significantly by at least 0.290 and 0.207, respectively. We test the heterogeneous treatment effects and the parallel trend based on heterogeneity robust estimators to ensure the validity and robustness of our DID identification strategy. We further identify how compulsory medical liability insurance can achieve Pareto improvement. First, it significantly reduces instances of medical disputes and completes the contract by enhancing trust between physicians and patients, due to a more complete market. The average number of hospitalization days for public hospitals in the treatment provinces increases by at least 0.297. Second, this insurance reduces per capita medical expenses by reducing the level of defensive medicine. The per capita medical expenses of public hospitals in the treatment provinces decrease by at least 322.062, thus improving treatment efficiency. Third, this compulsory insurance also makes the insurance markets more complete and encourages insurers to take on a more effective supervisory role in reducing information asymmetry (adverse selection and moral hazard). The loss ratios of medical liability insurance businesses in the treatment provinces decrease by at least 0.343. Therefore, Pareto improvement is achieved, which benefits all parties. Our study has important policy implications. First, we show that financial innovation such as liability insurance is an efficient tool for solving social conflicts, promoting social harmony, and maintaining long-term social stability. This reveals how financial innovation can be practically used to solve incomplete market problems caused by incomplete contracts. Second, we also demonstrate that insurance can enhance social trust, which can complete the contract and thus increase the efficiency of socioeconomic activities. Therefore, financial innovation (such as insurance innovation) can solve the problem of incomplete contracts. This extends beyond the medical market, and our methods and analysis framework can be applied to other markets, such as those for other credence goods and those in which contracts are highly incomplete, such as education, labor, and financial markets. Third, unhedged risks are a major constraint to economic development and social progress. Incomplete markets are essentially an indication that the space spanned by financial contracts is not full. To address the incomplete market problem, identifying the relevant missing markets and then creating the relevant financial contracts (such as Arrow securities) to complete the markets is necessary. However, the decentralized system may not spontaneously generate corresponding financial contracts, and appropriate government interventions are often necessary. Therefore, efficient markets and effective government often go hand in hand, which illustrates China's institutional advantages. Finally, our study provides an important academic foundation for understanding the high-quality development of both medical and insurance markets. The empirical results show that government interventions can achieve Pareto improvement under incomplete markets and that compulsory medical liability insurance is a Pareto-efficient institutional innovation that can promote the high-quality development of the medical system. Education, labor, and financial markets are key to China's high-quality development, and financial innovation can assist in promoting the development of these markets.
段白鸽, 王永钦, 夏梦嘉. 金融创新如何促进社会和谐？——来自中国医疗纠纷的证据[J]. 金融研究, 2023, 517(7): 77-96.
DUAN Baige, WANG Yongqin, XIA Mengjia. How Financial Innovation Enhances Social Harmony: Evidence from Medical Disputes in China. Journal of Financial Research, 2023, 517(7): 77-96.
[1]陈志武、林展和彭凯翔,2014,《民间借贷中的暴力冲突:清代债务命案研究》,《经济研究》第9期,第162～175页。 [2]段白鸽、王永钦和夏梦嘉,2019,《金融创新如何缓解信任品市场失灵？——中国食品安全责任强制保险的自然实验》,《金融研究》第9期,第75～93页。 [3]林暖暖,2010,《美国无过错医疗责任改革:制度缘起于法理启示》,《中国社会科学》第2期,第177～184页。 [4]王贞、封进和宋弘,2021,《医患矛盾和医疗费用增长:防御性医疗动机的解释》,《世界经济》第2期,第102～125页。 [5]岳阳和祝嘉良,2020,《医患关系与医学专业报考和录取》,《经济研究》第4期,第184～200页。 [6]Acemoglu, D., 2003, “Why not a Political Coase Theorem？ Social Conflict, Commitment, and Politics”, Journal of Comparative Economics, 31(2), pp. 620～652. [7]Arrow, K. J., 1963, “Uncertainty and the Welfare Economics of Medical Care”, American Economic Review, 53(5), pp. 941～973. [8]Arrow, K. J., 1969, “The Organization of Economic Activity: Issues Pertinent to the Choice of Market Versus Non Market Allocation”, Congress of the United States, The Analysis and Evaluation of Public Expenditures: The PPB System, pp. 47～64. [9]Arrow, K. J., 1974, The Limits of Organization, New York: Norton & Company. [10]Bo, S. Y., J. Chen, Y. Song and S. Zhou, 2020, “Media Attention and Choice of Major: Evidence from Anti-doctor Violence in China”, Journal of Economic Behavior and Organization, 170(1), pp. 1～19. [11]Callaway, B. and P. H. C. Sant’Anna, 2021, “Difference-in-differences with Multiple Time Periods”, Journal of Econometrics, 225(2), pp. 200～230. [12]Danzon, P. M., 1991, “Liability for Medical Malpractice”, Journal of Economic Perspectives, 5(3), pp. 51～69. [13]Fang, H. M., 2001, “Social Culture and Economic Performance”, American Economics Review, 91(4), pp. 924～ 937. [14]Geanakoplos, J. D. and H. M. Polemarchakis, 1986, “Existence, Regularity, and Constrained Suboptimality of Competitive Allocations when the Asset Market is Incomplete”, in Heller W. P., R. M. Starr, and D. A. Starrett Eds., Uncertainty, Information, and Communication: Essays in Honor of Kenneth J. Arrow, Cambridge, New York and Melbourne: Cambridge University Press, 3(1), pp. 65～95. [15]Gennaioli, N., R. La Porta, F. Lopez-de-Silanes and A. Shleifer, 2022, “Trust and Insurance Contracts”, Review of Financial Studies, 35(12), pp. 5287～5333. [16]Goodman-Bacon, A., 2021, “Difference-in-differences with Variation in Treatment Timing”, Journal of Econometrics, 225(2), pp. 254～277. [17]Hart, O., 1995, Firms, Contracts, and Financial Structure, Oxford University Press. [18]Hope, P. A., 2003, “Reforming the Medical Professional Liability Insurance System”, American Journal of Medicine, 114(7), pp. 622～624. [19]Jha, S., and M. Shayo, 2019, “Valuing Peace: The Effects of Financial Market Exposure on Votes and Political Attitudes”, Econometrica, 87(5), pp. 1561～1588. [20]Kessler, D. P. and M. McClellan, 1996, “Do Doctors Practice Defensive Medicine？”, Quarterly Journal of Economics, 111(2), pp. 353～390. [21]Tancredi, L. R. and J. A. Barondess, 1978, “The Problem of Defensive Medicine”, Science, 200(4344), pp. 879～ 882.
