36 THE JOURNAL OF RISK AND INSURANCE purchase a policy characterized by a lower degree of overall cost sharing (i.e, a lower a). This lower a can induce an increase in medical care demand. This second response is represented by ao ap, where ap captures the impact of a changing medical care price on the choice of insurance contract (i. e, the insurance contract choice effect)and dd captures the medical care response to a change in the degree of overall cost sharing (i.e, the moral hazard effect). From comparative statics of the optimality condition in (4)with respect to o, we have mU1p+U12H1pm Rewriting the optimality condition in Equation(9)as U1 dF(s)-ump dF(s)=0 (12) and differentiating it with respect to p, we have 人mn-cm-mdr a2R Uhom1-∈ n,pdf() UidF(s) ar/aR U1ldF(s)+Umpd(s L12H1 dF(s) U12H1a-dF(s), where Em, p=-ap H is the standard neoclassical price elasticity of demand for med. ical care. From Equation(11), we learn that medical care demand is decreasing in the degree of overall cost sharing (i.e. ad <o), since medical care is noninferior Equation(13)is key to evaluating the sign of do, the effect of a gross price change on insurance choice. From the implicit function theorem we know that do Since the sign of the insurance contract choice effect is the same as the sign of since the latter is ambiguous, the effect of a change in the gross price of medical care on insurance noice is also ambiguous The two behavioral responses are captured in the expression for the change in medical care demand with respect to a change in its price that is generated by a perturbation of the optimum conditions and can be expressed in elasticity form by multiplying by m and by making use of the comparative statics result op=pa0. Adding the 6 Later we present conditions under which this ambiguity is resol 17a change in P also has two income effects associated with a chang policy premium Ron medical care demand. The first income effect is induced by p's effect on R, given by136 THE JOURNAL OF RISK AND INSURANCE purchase a policy characterized by a lower degree of overall cost sharing (i.e., a lower σ). This lower σ can induce an increase in medical care demand. This second response is represented by ∂m ∂σ ∂σ ∂p , where ∂σ ∂p captures the impact of a changing medical care price on the choice of insurance contract (i.e., the insurance contract choice effect) and ∂m ∂σ captures the medical care response to a change in the degree of overall cost sharing (i.e., the moral hazard effect). From comparative statics of the optimality condition in (4) with respect to σ, we have ∂m ∂σ = U1 p + U12H1 pm − U11 p2σm  . (11) Rewriting the optimality condition in Equation (9) as  = −∂R ∂σ S U1 dF (s) − S U1mp dF (s) = 0 (12) and differentiating it with respect to p, we have ∂ ∂p = − S m[1 − m,p] (U1 − U11σmp) dF (s) + ∂R ∂σ S U11σm[1 − m,p]dF (s) − ∂2R ∂σ∂p S U1dF (s) + ∂R ∂p ∂R ∂σ S U11dF (s) + S U11mpdF (s)  − S U12H1 ∂m ∂p mpdF (s) − ∂R ∂σ S U12H1 ∂m ∂p dF (s), (13) where m,p = −∂m ∂p p m is the standard neoclassical price elasticity of demand for med￾ical care. From Equation (11), we learn that medical care demand is decreasing in the degree of overall cost sharing (i.e., ∂m ∂σ < 0), since medical care is noninferior. Equation (13) is key to evaluating the sign of ∂σ ∂p , the effect of a gross price change on insurance choice. From the implicit function theorem, we know that ∂σ ∂p = − ∂/∂p ∂/∂σ . Since the sign of the insurance contract choice effect is the same as the sign of ∂ ∂p and since the latter is ambiguous, the effect of a change in the gross price of medical care on insurance choice is also ambiguous.16 The two behavioral responses are captured in the expression for the change in medical care demand with respect to a change in its price that is generated by a perturbation of the optimum conditions and can be expressed in elasticity form by multiplying by p m and by making use of the comparative statics result ∂m ∂p = σ p ∂m ∂σ . 17 Adding the 16 Later we present conditions under which this ambiguity is resolved. 17 A change in p also has two income effects associated with a change in policy premium R on medical care demand. The first income effect is induced by p’s direct effect on R, given by