In the previous two chapters we have studied the determinants of demand for medical services, and, given the uncertainty surrounding health needs, the associated demand for insurance. An implicit assumption that permeated the whole of the analysis was that individuals had well-defined and well-informed preferences for health and health care, and that they made their consumption and risk-reduction decisions rationally. When we consider the supply of medical services, this assumption, which is basic to most economic analysis, must be tempered to some degree, because it becomes clear that as well as providing operational services (that is, injections, surgery, and the like), one of the primary roles of a medical care worker is the provision of information that affects the demand for services. The implications of this connection for the level and quality of care can be significant and lead us to question the likely efficiency of a market-determined allocation of resources in the health sector. This chapter considers the motivation and behavior of physicians an
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