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Does the Market Punish Aggressive Experts? Evidence from Cesarean Sections

Author

Listed:
  • Dranove David

    () (Northwestern University)

  • Ramanarayanan Subramaniam

    () (University of California, Los Angeles)

  • Sfekas Andrew

    () (Temple University)

Abstract

In many credence goods markets, a seller simultaneously diagnoses a problem and offers a recommendation to fix it. One might wonder what prevents these sellers from always exaggerating their customers needs. In this paper, we offer a simple explanation, namely, consumers may spurn sellers who have a reputation for such demand inducement. We test this explanation by examining patient choice of obstetrician in Florida. In most of the counties that we study, we find that maternity patients are significantly less likely to choose obstetricians who perform more than the expected number of cesarean sections. We address simultaneity by instrumenting for inducement propensity using information about the obstetrician's training. Although the instrument is weak, a series of robustness tests suggests that our findings are plausible while ruling out alternative explanations.

Suggested Citation

  • Dranove David & Ramanarayanan Subramaniam & Sfekas Andrew, 2011. "Does the Market Punish Aggressive Experts? Evidence from Cesarean Sections," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(2), pages 1-33, January.
  • Handle: RePEc:bpj:bejeap:v:11:y:2011:i:2:n:6
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    References listed on IDEAS

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    1. Darby, Michael R & Karni, Edi, 1973. "Free Competition and the Optimal Amount of Fraud," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 67-88, April.
    2. John A. List, 2006. "The Behavioralist Meets the Market: Measuring Social Preferences and Reputation Effects in Actual Transactions," Journal of Political Economy, University of Chicago Press, vol. 114(1), pages 1-37, February.
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    Cited by:

    1. Paola Bertoli & Veronica Grembi, 2017. "Medical Malpractice: How Legal Liability Affects Medical Decisions," CERGE-EI Working Papers wp600, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    2. Janet Currie & W. Bentley MacLeod & Jessica Van Parys, 2015. "Physician Practice Style and Patient Health Outcomes: The Case of Heart Attacks," NBER Working Papers 21218, National Bureau of Economic Research, Inc.
    3. Paola Bertoli & Veronica Grembi, 2017. "Exploring the Nexus between Certainty in Injury Compensation and Treatment Selection," CERGE-EI Working Papers wp603, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    4. Janet Currie & W. Bentley MacLeod, 2017. "Diagnosing Expertise: Human Capital, Decision Making, and Performance among Physicians," Journal of Labor Economics, University of Chicago Press, vol. 35(1), pages 1-43.
    5. Sofia Amaral-Garcia & Paola Bertoli & Veronica Grembi, 2015. "Does Experience Rating Improve Obstetric Practices? Evidence From Geographical Discontinuities in Italy," CERGE-EI Working Papers wp540, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    6. David Molitor, 2016. "The Evolution of Physician Practice Styles: Evidence from Cardiologist Migration," NBER Working Papers 22478, National Bureau of Economic Research, Inc.
    7. Amaral-Garcia, S. & Bertoli, P. & Grembi, V., 2014. "Does Experience Rating Improve Obstetric Practices? Evidence From Geographical Discontinuities," Health, Econometrics and Data Group (HEDG) Working Papers 14/23, HEDG, c/o Department of Economics, University of York.

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