Question

(5) A health plan implements an incentive to physicians to control hospitalization under which the physicians will be paid a bonus B equal to c times the amount by which total hospital claims are under 400 (0 ≤ c ≤ 1).

     The effect the incentive plan will have on underlying hospital claims is modeled by assuming that the new total hospital claims will follow a Pareto distribution with θ = 300 and α = 2.   

     E(B) = 100.

    Calculate c. (Ans 0.44)

Answer 1