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The physician-patient relationship as a game of strategic information transmission

  • Kris De Jaegher

    (Vrije Universiteit Brussel, Brussels, Belgium)

  • Marc Jegers

    (Vrije Universiteit Brussel, Brussels, Belgium)

We show that the intuition underlying the supplier-induced demand (SID) hypothesis is reflected in the cheap-talk literature from game theory, and in the credence-good literature from the economics of information. Applying these theories, we conclude that a neoclassical version of the SID hypothesis is only relevant for treatment decisions involving an expensive treatment that is equally effective in curing several states, but efficient in curing only some of these states (in that a cheaper treatment is efficient otherwise). For a simple game involving such a treatment decision, we show that a Nash equilibrium exists where the patient is able to constrain the physician in inducing demand, without the market for the potentially induced treatment failing. This equilibrium allows us to derive comparative statistics and welfare results. Copyright © 2001 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/hec.603
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Article provided by John Wiley & Sons, Ltd. in its journal Health Economics.

Volume (Year): 10 (2001)
Issue (Month): 7 ()
Pages: 651-668

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Handle: RePEc:wly:hlthec:v:10:y:2001:i:7:p:651-668
Contact details of provider: Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/5749

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  7. 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.
  8. Cheng Leonard K. & Zhu Min, 1995. "Mixed-Strategy Nash Equilibrium Based upon Expected Utility and Quadratic Utility," Games and Economic Behavior, Elsevier, vol. 9(2), pages 139-150, May.
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  13. Rochaix, Lise, 1989. "Information asymmetry and search in the market for physicians' services," Journal of Health Economics, Elsevier, vol. 8(1), pages 53-84, March.
  14. Pitchik, Carolyn & Schotter, Andrew, 1987. "Honesty in a Model of Strategic Information Transmission," American Economic Review, American Economic Association, vol. 77(5), pages 1032-36, December.
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  17. Kessler, Daniel & McClellan, Mark, 1996. "Do Doctors Practice Defensive Medicine?," The Quarterly Journal of Economics, MIT Press, vol. 111(2), pages 353-90, May.
  18. Sergiu Hart & Andreu Mas-Colell, 2000. "A Simple Adaptive Procedure Leading to Correlated Equilibrium," Econometrica, Econometric Society, vol. 68(5), pages 1127-1150, September.
  19. Daniel P. Kessler & Mark McClellan, 1996. "Do Doctors Practice Defensive Medicine?," NBER Working Papers 5466, National Bureau of Economic Research, Inc.
  20. E. Kohlberg & J.-F. Mertens, 1998. "On the Strategic Stability of Equilibria," Levine's Working Paper Archive 445, David K. Levine.
  21. Steven A. Matthews & M. Okuno-Fujiwara & Andrew Postlewaite, 1990. "Refining Cheap-Talk Equilibria," Discussion Papers 892R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  22. Asher Wolinsky, 1993. "Competition in a Market for Informed Experts' Services," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 380-398, Autumn.
  23. Harri Sintonen & Timo Maljanen, 1995. "Explaining the utilisation of dental care. Experiences from the finnish dental market," Health Economics, John Wiley & Sons, Ltd., vol. 4(6), pages 453-466, November.
  24. Weibull, Jörgen W., 1997. "What have we learned from Evolutionary Game Theory so far?," Working Paper Series 487, Research Institute of Industrial Economics, revised 26 Oct 1998.
  25. Grytten, Jostein & Carlsen, Fredrik & Sorensen, Rune, 1995. "Supplier inducement in a public health care system," Journal of Health Economics, Elsevier, vol. 14(2), pages 207-229, June.
  26. Reinhardt, Uwe E., 1985. "The theory of physician-induced demand reflections after a decade," Journal of Health Economics, Elsevier, vol. 4(2), pages 187-193, June.
  27. Paul Calcott, 1999. "Demand inducement as cheap talk," Health Economics, John Wiley & Sons, Ltd., vol. 8(8), pages 721-733.
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