Measuring physicians' response to incentives: Labour supply, multitasking and earnings

Abstract

AbstractPhysicians are typically paid for services completed. Yet, they provide different types of services with different prices, introducing a multitasking element to their labour‐supply decisions. We show that optimal behaviour generates a maximum earnings function in which earnings depend on prices and total hours worked. Estimation by limited‐information methods identifies a lower bound to the own‐price substitution effect of a price change. Full‐information methods identify the full response to incentives, including income effects. We illustrate these methods on a sample of specialist physicians working in Québec, Canada. Our results suggest that the own‐price substitution effects of a price change are both economically and statistically significant. Income effects are present but overridden when prices increase for individual services. In contrast, in the presence of broad‐based fee increases, the income effect dominates the substitution effect, which leads physicians to reduce their supply of services.