Supplier induced demand
Encyclopedia
In economics
, supplier induced demand (SID) may occur when asymmetry of information exists between supplier and consumer
. The supplier can use superior information to encourage an individual to demand
a greater quantity of the good or service they supply than the pareto efficient level, should asymmetric information not exist. The result of this is a welfare loss.
and healthcare markets, whereby doctors may encourage patients to demand healthcare they do not necessarily need. In this case the patient is induced to consume healthcare that he/she would not, if he/she had the same information as the doctor.
There is limited evidence for supplier induced demand with the exception of surgical services. Supplier induced demand is easier with surgery because surgeons typically have a greater ability to manipulate demand. Especially true in the case of fee for service payments, physicians have incentives to promote more expensive procedures and care. A 1996 article by Johnathan Gruber and Maria Owings looked at the relationship between physician financial incentives and cesarean section delivery by examining declining fertility rates in the United States.
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
, supplier induced demand (SID) may occur when asymmetry of information exists between supplier and consumer
Consumer
Consumer is a broad label for any individuals or households that use goods generated within the economy. The concept of a consumer occurs in different contexts, so that the usage and significance of the term may vary.-Economics and marketing:...
. The supplier can use superior information to encourage an individual to demand
Demand
- Economics :*Demand , the desire to own something and the ability to pay for it*Demand curve, a graphic representation of a demand schedule*Demand deposit, the money in checking accounts...
a greater quantity of the good or service they supply than the pareto efficient level, should asymmetric information not exist. The result of this is a welfare loss.
Health economics
Supplier induced demand is particularly important in health economicsHealth economics
Health economics is a branch of economics concerned with issues related to efficiency, effectiveness, value and behavior in the production and consumption of health and health care...
and healthcare markets, whereby doctors may encourage patients to demand healthcare they do not necessarily need. In this case the patient is induced to consume healthcare that he/she would not, if he/she had the same information as the doctor.
There is limited evidence for supplier induced demand with the exception of surgical services. Supplier induced demand is easier with surgery because surgeons typically have a greater ability to manipulate demand. Especially true in the case of fee for service payments, physicians have incentives to promote more expensive procedures and care. A 1996 article by Johnathan Gruber and Maria Owings looked at the relationship between physician financial incentives and cesarean section delivery by examining declining fertility rates in the United States.