The norms hypothesis and the demand for medical care

Our results cast doubt on the validity of the norms hypothesis--that physicians treat patients in accordance with the average or modal insurance coverage in an area. The one study in the literature directly supporting this hypothesis is misspecified; when more correctly specified, it provides no support for the hypothesis. Two versions of the hypothesis are distinguished. the stronger maintains that physicians do not take account of within-area variation in insurance coverage. This version is firmly rejected by the data. A weaker version says that the physician does take account of within-area variation but that between-area differences in average coverage have an independent effect on demand. Little or no support is found for this version, but our data do not permit very powerful tests.