Information Shocks, Legal Liability and Physician Decisions

Physician adoption of new information about a medical procedure can affect patient outcomes. Medical malpractice law may influence physician use of such information. We analyze how physician reactions to information shocks regarding vaginal births after cesarean sections (VBACs) in the 1990s were mediated by tort reform and the standard used in malpractice claims to determine a physician's duty of care to patients. Differentiating states according to whether they capped non‐economic damages in malpractice claims (Caps) and whether they defined the duty of care using a national or a local reference point, we analyze how physicians under the four legal regimes reacted to a series of adverse information shocks regarding VBACs over the period. Our results suggest that physicians whose duty of care is determined by standard practices nationwide are less likely to adopt innovations which have not yet been incorporated into those practices and more likely to adopt innovations once they are incorporated into those practices. Caps may moderate these effects. Our results also suggest intuitive heterogeneity in the effects of legal regime on physician decisions.