Measuring physicians' response to incentives: Labour supply, multitasking and earnings

Physicians are typically paid for services completed. Yet, they provide different types of services with different prices, introducing a multitasking element to their labour-supply decisions. We show that optimal behaviour generates a maximum earnings function in which earnings depend on prices and total hours worked. Estimation by limited-information methods identifies a lower bound to the own-price substitution effect of a price change. Full-information methods identify the full response to incentives, including income effects. We illustrate these methods on a sample of specialist physicians working in Québec, Canada. Our results suggest that the own-price substitution effects of a price change are both economically and statistically significant. Income effects are present but overridden when prices increase for individual services. In contrast, in the presence of broad-based fee increases, the income effect dominates the substitution effect, which leads physicians to reduce their supply of services.