Learning and understanding health economics is very important. First, health is important to us as individuals and for society because health is essential for prosperity of a society. The availability of health care can determine the quality of our lives and our prospects for survival. Health affects time available to produce wealth. Thus, ill health reduces people`s ability to earn money. Also, it affects one`s happiness. No one likes to suffer from pain and be useless for society.Secondly, the health care sector of the economy is very large. Governments intervene in health care markets to a great degree by regulating who may provide services, what providers can charge or what profits they may earn, subsidizing healthcare (partly or fully) and/or directly providing health care (i.e. public hospitals) (Morris,2007). Public sector pays a substantial proportion of expenditure on healthcare services in many countries all over the world. Nowadays government expenditures on healthcare constitute an important and rising share of Gross Domestic Product (GDP). In this thesis my concern is with the relation between health care resources and health care performance and physicians behaviour under three different systems: fee-for-services (payments for every item of care provided), capitation (where healthcare providers (physicians) are paid a predetermined amount for each person assigned or enrolled to their practice, whether or not that person seeks care, per period of time.) and mixed payment systems (which combine elements from both fee-for-services and capitation payment system). Health has an important impact on our welfare as human beings. Healthcare is one of the inputs in achieving better health and is very substantial. In health economics health care is considered as an economic good. Production of health care, like production of any other good, requires human resources, capital and raw materials. Nevertheless, healthcare has some specific characteristics which distinguish it from other goods. First of all, it is impossible to physically observe the good (health care) before buying it. Secondly, health care is untradeable. Being bought by one individual it cannot be sold further to another one. It cannot be traded for some other goods. Thirdly, the satisfaction (utility) of consuming health care is usually determined in a long run through its effect on consumer`s health. Moreover, one of the characteristics which are specific to the market for medical care is uncertainty. To start with, there is uncertainty about demand of health care goods and services because individuals cannot predict when and how much medical care they will demand because of the nature of disease and its incidence are uncertain. There is as well an uncertainty about access to the medical care required, i.e. there might be a need to travel abroad in order to get an appropriate treatment. By “appropriate” I mean that healthcare providers supply their patients with the right medical treatment, and handle them with sympathy and understanding ect. I would refer to these aspects of care as the quality of medical services provided. Besides that health care expenditures may require individuals to spend a significant share of their available income illness may also reduce their ability to work. As a result of uncertainty about timing and amount of medical treatment costs the consumers of health care are influenced by financial risk at any time. Risk averse consumers of medical care want to transfer the risk burden to a third-party payer such as an insurance company or the government. In this case third-party payers are responsible for managing the financial risk associated with the purchase of health care treatment. An individual who dislikes risk, buys an insurance contract paying an agreed price, premium, in exchange for a payout the insurance company is going to make if the insured becomes ill. Thus, health insurance removes, in a way, uncertainty facing individuals with respect to the magnitude of health care expenditure.Health insurance changes the economic incentives facing both the consumers and the providers of health care. One of these changes is moral hazard on demand side, which means that being insured lots of consumers tend to use excess amount of medical services. Another problem is incomplete coverage. This means that some low income groups of population might find it difficult for them to afford health insurance. Another specific characteristic of a medical care market is information asymmetry between consumers, suppliers of medical care and a third-party (government, insurance company etc.). To be able to provide medical care, suppliers must obtain a certain level of medical knowledge. This means that in order to be able to participate on the medical care market they need to obtain required medical license. Being better informed medical care providers have an advantage over consumers in judging the quality of medical care. Considering the fact that it is very difficult for patients to possess information about an appropriate medical treatment for their condition and following professional norms and ethics, care providers should make their specialist knowledge available to the patients thus building a trustful relationship between them and maximizing consumer`s utility. Nevertheless, the supply of health care can be dictated by the selfish interests of the provider. In this case, health care providers are concerned only about maximizing their own utility inducing patients to consume medical services at a level beyond needed or provide quality below agreed standards. They are thus failing to maximize patient`s utility.It worth mentioning the concept of a health care system because they are designed to meet the health care needs of populations. The World Health Organization (WHO) defines a health care system as the arrangement of all organizations, institutions and resources devoted to produce actions whose primary intent is to improve health. Health care systems vary in performance all over the world. Nevertheless, it is possible to illustrate the three elements common to all health care systems: financing, reimbursement, and production or delivery (see the Figure below).Being different health care systems should still be orientated on how best to raise sufficient funds for health, how to pool them together to spread the financial risks of ill health, and how to ensure that they are used effectively, efficiently, and equitably. In this thesis my concern is with the relation between health care resources and heath care performance and how different payment mechanism are likely to affect provider behavior and patient`s consumption of health care treatment referring to the literature on payment mechanisms.In the first part of the thesis I will focus on the theoretical foundations of different payment mechanisms used to finance healthcare providers (physicians), and incentives they create for physician`s professional behavior and patient`s well-being. I specifically discuss how as information asymmetry, provider altruism, competition between providers, physician monitoring may change healthcare provider`s behavior.In the empirical part I will investigate the theoretical results with relevant empirical evidence available.