PHYSICIAN-INDUCED DEMAND FOR CHILDBIRTHS

A controversial technique for testing the hypothesis that physicians i nduce demand involves two stage least squares (TSLS) regression analys is of cross-section data on physician supply and utilization. This pap er tests the power of TSLS by applying it where there is at most only a trivial amount of demand inducement - the demand for childbirths. We find 'evidence' of inducement of childbirths, calling into question t he validity of the TSLS approach. This unlikely finding may be traced to at least two factors: The first stage regression is not identified and the second stage regression does not adequately address border cro ssing.