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Physicians' working practices : target income, altruistic objectives or a maximization problem ?

Listed author(s):
  • Béatrice Desquins
  • Alberto Holly
  • Jacques Huguenin

In traditional literature, a number of authors posit that physicians, like a consumer or a firm, adopt maximization behavior, while others claim that they are motivated by the attainment of a target income. These three approaches may seem contradictory, yet the present study aims to show that they are in fact complementary. This paper aims to highlight the overlapping of these approaches by using a theoretical model - the agent model. From this model, we deduce the income effect, the individualistic substitution effect, the monopolistic effect and their respective elasticities to detect target income behavior. We develop also two theoretical models of leisure and income renouncement to determine the priority which the physician gives to consumption and leisure. Unlike other models, our results show that about 20% of physicians prefer to reach an altruistic objective rather than a leisure or an target income. These last result implies a ranking of target priorities. Moreover, we observe that the Slutsky relation cannot be used to determine individualistic substitution, monopolistic substitution and income effects exactly when leisure is an inferior good. Nor can we confirm the adoption of a target income behavior when income and monopolistic elasticities are negative. Renouncement models indicate that between 60% and 67% of GPs have a clear consumption priority and that they accept a renouncement of their leisure in order to maintain their current level of income. Our results demonstrate that it would be necessary to introduce monopolistic power of physicians and their altruistic priority to test inducement demand.

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Paper provided by University of Lausanne, Institute of Health Economics and Management (IEMS) in its series Working Papers with number 0903.

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Length: 53 pages
Date of creation: Apr 2009
Handle: RePEc:hem:wpaper:0903
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  1. Rizzo, John A. & Blumenthal, David, 1994. "Physician labor supply: Do income effects matter?," Journal of Health Economics, Elsevier, vol. 13(4), pages 433-453.
  2. Thomas G. McGuire & Mark V. Pauly, 1991. "Physician Response to Fee Changes with Multiple Payers," Papers 0015, Boston University - Industry Studies Programme.
  3. McGuire, Thomas G. & Pauly, Mark V., 1991. "Physician response to fee changes with multiple payers," Journal of Health Economics, Elsevier, vol. 10(4), pages 385-410.
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