We measure the response of physicians to monetary incentives using matched administrative and time-use data on specialists from Québec (Canada). These physicians were paid fee-for-service contracts and supplied a number of different services. We model physician behaviour and derive a conditional earnings function that returns the maximum earnings a physician can generate in the labour market, conditional on total hours worked. The earnings function is estimated using both limitedinformation methods and full-information methods. Limited-information methods impose fewer restrictions on the data, but are less informative over incentive effects. Le Chatelier effects imply that they identify lower bounds to the own-price substitution effects. Full-information methods explain earnings and hours simultaneously. They identify the full response to incentives, including income effects. Our results confirm that physicians respond to financial incentives. The own-price substitution effects of a relative price change are both economically and statistically significant. Income effects are present, but are overridden when prices are increased for individual services. They are more prominent in the presence of broad-based fee increases. In such cases, the income effect empirically dominates the substitution effect, which leads physicians to reduce their supply of services.
Bruce Shearer : Département d’économique, Université Laval, CRREP, CIRANO and IZA. Bruce.Shearer@Ecn.Ulaval.Ca.
Nibene Habib Somé : Department of epidemiology and biostatistics, Western University and Institute for clinical evaluative sciences (ICES). Nsome@UWO.Ca
Département d’économique, Université Laval, CRREP, Industrial Alliance Research Chair on the Economics of
Demographic Change, CIRANO. Bernard.Fortin@Ecn.Ulaval.Ca.
Financial support from CIHR and FRQSC is gratefully acknowledged. We thank participants to workshops and seminars in Paris School of Economics and Canadian Health Economics Study Group for useful discussion.