Under conditions of perfect information, all consumers and producers have complete information on all prices as well as the quality any goods or services available in the market. Consumers will also be as well informed concerning the product as the seller. However, in the case of the asymmetric information about quality of goods or services, suppliers have and use their superior knowledge to influence demand for their self-interests. The asymmetric information may be able to generate supplier-induced demand (SID). The increase of physicians generates over-utilization of medical care services under SID hypothesis. However, if there is not any asymmetric information, the increase in the number of physicians may reduce time cost of medical access, hence encourages demand for medical care. Under conditions disregarding the access cost of medical care, the empirical result of SID may be over-estimated.
We estimate the necessary input of medical services for the sake of maintaining the level of health status by estimation of the expenditure function of medical care. Since variations of medical access rate are controlled within estimation model, we measure the degree of waste of medical care use by the increase of physicians in our model. Our study finds that inducement elasticity of about 0.8 for inpatient care,0.4 for the outpatient care.