Knowing Your Audience: Peer Effects in the Efficacy of Disclosure of Conflicts of Interest

Abstract

Conflicts of interest have come under heavy scrutiny lately, particularly in markets for expertise. This had led to the increasing popularity of disclosure policies. The principle motivating disclosure is the potential for a reputational sanction—the disclosure of a conflict of interest would shame a worker into avoiding the appearance of bias. Prior work has examined disclosure of advisors’ (e.g., doctors, lawyers, auditors) conflicts of interest to advisees. But the audience is a crucial determinant of a reputational incentive, and advisees are only one of many potential audiences for disclosure. I examine how an audience of peers can make disclosure more efficacious. This research examines disclosure in the context of pharmaceutical industry payments to physicians. Using data on all hospital admissions in New Jersey from 2008 to 2010, I find that physicians disclosed for receiving payments from pharmaceutical manufacturers have a significantly lower rate of prescribing branded drugs when working on cases with another physician, relative to cases where they are working alone; this effect only holds when the physician is working with physician of equal hierarchical status, but not with a subordinate. These physicians are not statistically significantly different from physicians who were never disclosed when they are acting alone. Thus while disclosure of these payments was meant to modify behavior by revealing information to the general public, these results suggest that this is not the relevant audience. I discuss the implications of this for markets for expertise, as well as for the health care industry specifically.