Geographic
Variations in Medical Practice,
External Efficiencies, and the Role of Practice Guidelines
David
Dranove and William P. Rogerson
Abstract
It is well-documented that the method used to treat
various illnesses can vary widely across geographic regions. The
traditional explanation for this phenomenon is poorly informed doctors
and/or patients. We propose an alternate theory to explain the existence
of practice variation. This is that local externalities result in
the existence of multiple equilibria and that practice variation
is the result of different equilibria occurring in different regions.
This theory has testable implications that distinguish it from the
traditional theory. Under this theory the nature of the market failure
is a coordination failure, rather than an information imperfection,
and this suggests different policy approaches. In particular, practice
guidelines and managed care may help physicians make more coordinated,
and thus better, decisions.
David Dranove,Kellogg Graduate School of Management
William P. Rogerson,Department
of Economics, Northwestern University
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