Demand Inducement and the Physician/Patient Relationship

David Dranove

Economic Inquiry, 1988, vol. 26, issue 2, 281-98

Abstract: The physician/patient relationship is a paradigm for any expert/client relationship. The physician both diagnoses the patien t's illness and recommends a treatment. This dual role gives the phys ician incentive to recommend treatments whose costs outweigh their me dical benefits. These socially inefficient treatments correspond to t he notion of "physician-induced demand." The level of inducement chos en by the physician is shown to depend on the price and potential med ical benefits of treatment and the relative diagnostic skills of phys ician and patient. This model offers several testable hypotheses, som e of which are confirmed by related studies. Copyright 1988 by Oxford University Press.

Date: 1988
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