ABSTRACT
It should be clear by now that one effect of the supplier’s involvement in the consumption decisions of the patient is that it becomes difficult to specify a pure demand variable in empirical studies. As a result a particularly poignant criticism of the demand for health care literature is that the dependent variable in empirical specifications of the demand function normally reflects utilisation rather than demand per se. Therefore, a number of purportedly ‘demand’ studies are in fact utilisation studies. This is a more serious problem than simply one of identification, in that in this case demand does not exist independently of supply. Thus as Stoddart and Barer (1981, p. 149) remark, given the existing evidence that health services utilisation is not compatible with the normal economic definition of demand, it is surprising to find the distinction between demand and utilisation so seldom made explicit in the literature. The conventional notion of demand, as applied to the health care market, is not acceptable even if the perfect agency relationship exists. However, if there is any exercising of discretionary power by the clinician, which as we have seen is likely in the real world, then it is certainly inappropriate to define demand in terms of consumption. The acceptance of utilisation as the relevant concept acknowledges that with consumption choices in the health care sector the consumer relies upon information provided by the supplier. This phenomenon is not of course unique to health care-although the degree of reliance is more significant in this sector, particularly given the supplier’s role in defining the expected utility to be attached to the possible outcomes.
