ABSTRACT
This chapter address the issue from a supply and demand analysis described by Jonathan Skinner, and update the empirical evidence. It investigates two physician practice characteristics that distinguish them from other for-profit firms and examines the progress of theory and evidence. In the United States, private practice physicians generally operate in for-profit firms, so it might seem a simple task for economists to model their market behavior. The chapter describes physicians who knowingly induce their patients to consume other than this optimal amount of care as being in violation of agency. The models of Supplier-Induced Demand (SID) and target income necessarily abstract from the care process rendered by skilled professionals who are seeking to provide the most appropriate treatment for their patient. David Dranove and Paul Wehner challenged the accuracy of standard statistical methods used by health economists to test for SID in an unusual and revealing way.