Volume 22, Number 4 (Fall) 1987

Stano, Miron. 1987. "A Clarification of Theories and Evidence on Supplier-Induced Demand for Physician's Services." Journal of Human Resources 22(4):611-620.

This article both simplifies and extends the literature on physician- induced demand. It shows that inducement should be expected in all imperfectly competitive markets that are also characterized by incomplete agency relationships. More important, it argues that confusion over the extent of the inducement phenomenon has been created by several contributions that fail to distinguish between the effects of changes in physician-population ratios on changes in the individual physician's output, and the effects on per-capita utilization. In particular, it demonstrates that, by confounding units of analysis, the major empirical results found in recent articles by Rossiter and Wilensky are contradicted by their model. Their evidence, however, together with findings from other studies, are reinterpreted to suggest that physicians are even more constrained, than is generally believed, in being able to induce increases in demand.