Adverse Selection and Moral Hazard Term Paper

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Supplier-induced demand and small-area variations problems are, in practice, identical problems." True or false?

False. Supplier-induced demand is when individual physicians use their place of trust to generate demand for personal gains, such as encouraging more frequent doctor visits than is necessary for a healthy, hypochondriac wealthy patient. Small-area variations are an institutional and societal problem, when there are wide discrepancies in rates of surgery, physician visits, and hospitalization between populations, reflecting an asymmetry of community information (Nichols 2005:202).

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In the former, doctors may encourage unnecessary treatment or visits to increase payments on an individual basis, while in small-area variations, larger sociological or economic disparities between populations may be at issue, or cultural or educational barriers to getting high-quality care.

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