Duke 2008 | ASHE | Equity and Efficiency in Health and Healthcare

The most common definition of supplier induced demand in health economics entails a fraud. It is that the physician driven by the desire for greater income induces the patient to accept a treatment that the patient would not have chosen had he been as informed as the physician. As such it is a deliberate violation of the physician's agency relationship with the patient, done for monetary gain. We health economists further describe this physician as incurring disutility by doing this.

Given the available advertising economics theory, as is Becker and Murphy (1993) and contributions from Marketing, we can now generate a broader, marketing model of inducement with wider applicability. This paper demonstrates with constrained maximization models, both the received model and this marketing model, that it is consistent with the empirical findings that we have previously taken as evidence for SID, including observed changes in outputs, surgery rates and physician fees common to our literature. By avoiding the unnecessarily narrow conception of inducement, it is no longer obvious that it reduces social welfare. Finally, in the sense of William of Occam, we ought to lop off unnecessary elements of ?SID theory?. The first such candidate becomes the disutility of inducement, which is foreign to marketing and it is unnecessary for either attaining a solution or for explaining the phenomena we observe. Second, and more important, the supposition that observed inducement is fraudulent is an accusation unsupported by our evidence and it should be dropped.