2. Consider the issue of health care costs. Research has revealed that there are significant cost variations within counties, cities, and even within hospitals. This phenomenon is sometimes referred to as Small Area Variations (SAV).
a. Discuss the role of physician incentives, asymmetric and/or imperfect information, medical technology, the hospital industry/market structure, and anything else that you deem important from your readings this semester, in driving these cost disparities.
b. Suppose you are a policy maker charged with reducing SAV. Design two potential policy solutions and explain why they would be successful.