The Production of and Market for New Physicians’ Skill

Our understanding of the determinants of physician skill and the extent to which skill is valued in the marketplace is superficial. Using a large, detailed panel of new obstetricians, we find that, even though physicians’ maternal complication rates improve steadily with experience, initial skill (as measured by performance in a physician's first year of practice) explains more of the variation in physician performance over time than experience does. At the same time, we find that the trajectories of new physicians’ delivery volume develop in a way consistent with Bayesian learning about physician quality. As physicians gain experience, their volume becomes increasingly sensitive to the information in their accumulated prior belief, while responses to information on recent performance are detectable in only selected settings (e.g., vaginal delivery, commercially insured patients).