The economists found that the number of physicians per capita correlated
positively with the payments they received, and they pointed out that this positive
correlation contradicted the results shown by the competitive market, Because tre
number of physicians per capita can be thought of as the degree of competition
within the physician Market. They named this fact supplier Induced Demand (SID).
In this Paper I am going to show the intuition underlying the SID in the context of
Asymmetry Information and Cheap talk signaling game. I show that in this context
the SID is only relevant for treatment decision involving an expensive treatment that
is equally effective in curing several states, but efficient in Curing only some of
these state.
JEL Classification: cn, Ill, DOL
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