Peer Effects in the Efficacy of Disclosure of Conflicts of Interest

Abstract

The judgment of employees is a critical component of human capital for all firms, but particularly in markets for expertise such as health care. Thus the potential for conflicts of interest to cloud workers’ judgment is of significant concern, and has led to increasing popularity of disclosure policies. The Physician Payment Sunshine Act of 2010 mandated that pharmaceutical manufacturers disclose the payments and gifts given to physicians with the intention of containing rising drug prices. The belief that undergirded this legislation, as with disclosure policies generally, is that physicians would be shamed by disclosure into cost consciousness (namely, prescribing generic rather than branded drugs). Research since then has shown that disclosure has not had the desired effect of reducing the use of branded drugs. I use data on all hospital admissions in New Jersey from 2008 to 2010 to examine how “monitoring” by peers can offset this. I find that physicians disclosed for receiving payments from pharmaceutical manufacturers have a significantly lower likelihood of prescribing branded drugs when working on cases with another physician, relative to their own behavior on cases where they are working alone; the effect varies with the relative status of the other physician (e.g., surgeon vs. resident). 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 the health care industry specifically, as well as implications in the market for expertise more generally.