Are physicians profit or rent seekers? Some evidence from state economic growth rates

Previous research has debated whether physicians act as profit- or rent-seekers. We argue that these two models of physician behavior can be tested by observing empirically the relationship between physician density and economic growth rates. A direct (inverse) relationship provides evidence for the profit-seeking (rent-seeking) theory of physician behavior. We empirically examine the impact of physician density on the economic growth of all US states over the period from 1973 to 2009. The empirical analysis generally finds a statistically significant and direct relationship between physician density and the growth of gross state product. The results are robust with respect to state- and time-fixed effects, individual state time trends, and 2SLS (two-stage least squares) estimation. Thus, in support of the profit-seeking theory of physician behavior, the findings reveal that physicians generally have a positive impact on the growth of the US economy.