Does the Market Punish Aggressive Experts? Evidence from Cesarean Sections

In many credence goods markets, a seller simultaneously diagnoses a problem and offers a recommendation to fix it. One might wonder what prevents these sellers from always exaggerating their customer’s needs. In this paper, we offer a simple explanation, namely, consumers may spurn sellers who have a reputation for such “demand inducement.” We test this explanation by examining patient choice of obstetrician in Florida. In most of the counties that we study, we find that maternity patients are significantly less likely to choose obstetricians who perform more than the expected number of cesarean sections. We address simultaneity by instrumenting for “inducement propensity” using information about the obstetrician's training. Although the instrument is weak, a series of robustness tests suggests that our findings are plausible while ruling out alternative explanations.