We analyze the incentive effects of organizational forms on brokers’ performance with a simple model of moral hazard. We show that, given the compensation structure, a broker supplies more effort on both quality assurance and cost reduction but less effort on screening trip eligibility as its share of transit services increases. Consequently, the number of beneficiaries using services and the number of claims per user increase as the broker’s share of transit services increases. Moreover, for a given number of claims, cost per claim decreases as the broker’s share of transit services increases. The authors tested this thesis using data of FL’s NEMT programs in all 67 counties from FY 1991-2002. The empirical evidence supports the propositions.
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