Social Interactions and Geographical Variation in Medical Care

This paper shows how social influences on individual decisions help resolve a public health puzzle—the inordinate effect of geography on treatment. To explain geographical variations, we construct a theoretical model in which physician choices are subject to either local increasing returns or a desire to conform. Small regional differences in the patient mix give rise to divergent treatment patterns—the treatment a patient receives depends on where she lives. The patterns of practice depend, in predictable ways, upon regional demographics. The empirical analysis uses data from Florida on coronary patients and their doctors. The data reveal significant geographic variation in treatment rates along lines predicted by our model. We also find empirical support for the claim that local peer behavior influences a physician’s treatment choices. We wish to thank Peyton Young for bringing the geographical variation puzzle to our attention, and for several subsequent discussions. We are grateful to Dennis Epple for comments on an earlier draft of the paper. We also wish to acknowledge participants of the 13th Annual Conference on Health Economics (2002), and seminars at the Brookings Institution, the Santa Fe Institute, the Universities of Iowa, Bergen (Norway) and South Florida. Support from the Brookings Institution and University of Bergen is greatly appreciated. Please address correspondence to: Gary M. Fournier, Department of Economics, Florida State University, Tallahassee, FL 32306-2180, U.S.A. Tel.(850)644-7080 Email: [email protected].