Asymmetry Information Theory of Suppler Induced Demand In Relationship Between Patients and Physicians

The economists found that the number of physicians per capita correlated positively with the payments they received, and they pointed out that this positive correlation contradicted the results shown by the competitive market, because the number of physicians per capita can be thought of as the degree of competition within the physician Market. They named this fact supplier Induced Demand (SID). In this Paper I am going to show the intuition underlying the SID in the context of Asymmetry Information and Cheap talk signaling game. I show that in this context the SID is only relevant for treatment decision involving an expensive treatment that is equally effective in curing several states, but efficient in curing only some of these state.