An Alternative Perspective On Information Asymmetry; Implications For Consumer Authority In Physician Services Markets


  • Financial support for this study was provided by a grant from the Center for Health Research in the Institute for Business and Economic Research, University of California at Berkeley. The author thanks Richard Scheffler, Farasat Bokhari, Jonah Gelbach, Gabriel Picone, Jeffrey DeSimone, R. Mark Wilson, Thomas Carter, seminar participants in the Health Policy Research Training Program (2001–03) at the University of California at Berkeley's School of Public Health, as well as a coeditor and two anonymous referees for helpful comments and suggestions. The author is also grateful for the comments of Helen Citkina and other participants of the Health Economics Research Organization (HERO) session at the 2004 meetings of the Allied Social Science Association. Sukyong Seo provided valuable research assistance. Finally, the author is very grateful for the insights and comments of Dennis Heffley on an earlier version of this paper. All interpretation of results and methods to achieve them are the sole responsibility of the author.


This paper looks at the impact of patient knowledge on utilization and quality in physician services markets, developing a theoretical framework based on an alternative to the “market failure” perspective first proposed by Arrow (1963). Specifically, this paper looks at how outcomes in physician services markets are determined by whether patient and physician knowledge are substitutes or complements in health production. Empirical testing of the theoretical predictions indicates patient and physician knowledge have changed from substitutes to complements in recent years, and that this change may be hindering a more consumer-driven market from ensuring high quality outcomes.