Provider–client interactions and quantity of health care use Hsien-Ming Lien a,∗ , Ching-To Albert Ma b , Thomas G. McGuire c a Department of Public Finance, National Cheng-Chi University; 64, Sec. 2, Zhi-nan Road, Wenshan, Taipei 116, Taiwan,ROC b Department of Economics, Boston University, 270 Bay State Road, Boston, MA 02215, USA c Department of Health Care Policy, Harvard Medical School, 180 Longwood Avenue, Boston, MA 02115, USA Received 16 October 2002; received in revised form 24 March 2004; accepted 24 March 2004 Available online 21 July 2004 Abstract This paper considers three types of provider–client interactions that influence quantity of health care use: rationing, effort, and persuasion. By rationing, we refer to a quantity limit set by a provider; effort, the productive inputs supplied by a provider to increase a client’s demand; persuasion, the unproductive inputs used by a provider to induce a client’s demand. We construct a theoretical model incorporating all three mechanisms as special cases. When the general model is specialized into one of three mechanisms, a set of empirical implications emerges. We test for the presence of each mechanism using data of patients receiving outpatient treatment for alcohol abuse in the Maine Addiction Treatment System. We find evidence for rationing and persuasion, but not effort. © 2004 Elsevier B.V. All rights reserved. Keywords: Physician induced demand; Rationing and effort 1. Introduction The theoretical and empirical literatures in health economics take different approaches to the issue of provider induced demand. In the empirical literature, the term “provider induced demand” (PID) is used broadly to account for a range of empirical findings. Many studies have shown that when common demand-side variables (such as demand price, income and clinical needs) are controlled for, consumer demands continue to be affected by physician ∗ Corresponding author. E-mail addresses: hmlien@nccu.edu.tw (H.-M. Lien), ma@bu.edu (C.-T. Albert Ma), mcguire@hcp.med.harvard.edu (T.G. McGuire).