Information asymmetry and search in the market for physicians' services

This paper offers an integrated approach to the physician-patient interaction based on the notion of a conditional demand function where the physician 'proposes' and the patient 'disposes'. The model specifies the information asymmetry between the physician and the patient mainly in terms of a differential in uncertainty about the patient's health status. An imperfect agency may result, leading some physicians to recommend more (less) treatment than the patient would have chosen, had the patient been fully informed. But patients are shown to exert pressure on their physician by potentially seeking a second opinion. In effect, patients' search for an adequate treatment becomes an ex ante monitoring technique, which induces physicians to act as 'better agents'. We further show, by means of a simulation, that it is enough for a small number of patients to be well informed for this result to hold.