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Demand inducement as cheap talk

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  • Paul Calcott

Abstract

The doctor–patient interaction is analysed in a game of cheap talk. Causes and consequences of imperfect agency are examined. One form of imperfect agency, supplier‐induced demand, is a feature of neologism proof equilibria with some parameter values but not with others. The model is used to evaluate two tests that have been used to test for the existence of supplier‐induced demand. The analysis suggests that the two tests, which compare the medical utilization of informed and uninformed consumers, are not valid. Copyright © 1999 John Wiley & Sons, Ltd.

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  • Paul Calcott, 1999. "Demand inducement as cheap talk," Health Economics, John Wiley & Sons, Ltd., vol. 8(8), pages 721-733, December.
    • Handle: RePEc:wly:hlthec:v:8:y:1999:i:8:p:721-733
    DOI: 10.1002/(SICI)1099-1050(199912)8:8<721::AID-HEC486>3.0.CO;2-A
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    References listed on IDEAS

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    1. Lee, ChoongSup, 1995. "Optimal medical treatment under asymmetric information," Journal of Health Economics, Elsevier, vol. 14(4), pages 419-441, October.
    2. 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.
    3. Farrell Joseph, 1993. "Meaning and Credibility in Cheap-Talk Games," Games and Economic Behavior, Elsevier, vol. 5(4), pages 514-531, October.
    4. Matthews, Steven A. & Okuno-Fujiwara, Masahiro & Postlewaite, Andrew, 1991. "Refining cheap-talk equilibria," Journal of Economic Theory, Elsevier, vol. 55(2), pages 247-273, December.
    5. Blomqvist, Ake, 1991. "The doctor as double agent: Information asymmetry, health insurance, and medical care," Journal of Health Economics, Elsevier, vol. 10(4), pages 411-432.
    6. Hay, Joel & Leahy, Michael J., 1982. "Physician-induced demand : An empirical analysis of the consumer information gap," Journal of Health Economics, Elsevier, vol. 1(3), pages 231-244, December.
    7. 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.
    8. Dranove, David, 1988. "Demand Inducement and the Physician/Patient Relationship," Economic Inquiry, Western Economic Association International, vol. 26(2), pages 281-298, April.
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    Cited by:

    1. Schottmüller, Christoph, 2013. "Cost incentives for doctors: A double-edged sword," European Economic Review, Elsevier, vol. 61(C), pages 43-58.
    2. Winand Emons, 2013. "Incentive-Compatible Reimbursement Schemes for Physicians," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 169(4), pages 605-620, December.
    3. Kris De Jaegher & Marc Jegers, 2001. "The physician–patient relationship as a game of strategic information transmission," Health Economics, John Wiley & Sons, Ltd., vol. 10(7), pages 651-668, October.
    4. F. Barigozzi & R. Levaggi, 2005. "New Developments in Physician Agency: the Role of Patient Information," Working Papers 550, Dipartimento Scienze Economiche, Universita' di Bologna.
    5. K.J.M. De Jaegher, 2012. "The value of private information in the physician-patient relationship: a gametheoretic account," Working Papers 12-23, Utrecht School of Economics.
    6. Bertrand Crettez & Régis Deloche & Marie‐Hélène Jeanneret‐Crettez, 2020. "A demand‐induced overtreatment model with heterogeneous experts," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(5), pages 1713-1733, September.
    7. Felix C.H. Gottschalk, 2019. "Why prevent when it does not pay? Prevention when health services are credence goods," Health Economics, John Wiley & Sons, Ltd., vol. 28(5), pages 693-709, May.
    8. Neuman, Einat & Neuman, Shoshana, 2007. "Agency in Health-Care: Are Medical Care-Givers Perfect Agents?," IZA Discussion Papers 2727, Institute of Labor Economics (IZA).
    9. Einat Neuman & Shoshana Neuman, 2009. "Agency in health-care: are medical care-givers perfect agents?," Applied Economics Letters, Taylor & Francis Journals, vol. 16(13), pages 1355-1360.
    10. Barigozzi, Francesca & Levaggi, Rosella, 2008. "Emotions in physician agency," Health Policy, Elsevier, vol. 88(1), pages 1-14, October.
    11. Kris De Jaegher, 2019. "Strategic framing to influence clients’ risky decisions," Theory and Decision, Springer, vol. 86(3), pages 437-462, May.

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