Question

1. Physicians

Consider the following facts:

• Between 1970 and 1989 the fertility rate (births/100 persons) in the U.S. fell by nearly 15%.
• Over the same period the rate of Cesarean deliveries/100 births increased from around 6% to 24%.  
• There is no evidence that Cesarean deliveries, on average, yield better outcomes for the infant, but they are riskier for the mother (although the absolute risk is extremely low in either type of delivery).
• Obstetricians are reimbursed about 40% more for a Cesarean delivery than for a vaginal delivery.
• Cesarean delivery is a more complicated procedure than vaginal delivery, but the physician workload in terms of time may actually be less for a Cesarean delivery.

Gruber and Owings (Rand Journal of Economics, 1996) studied the increase in Cesarean deliveries in the 1970s and 80s. Using regression models they found that:

1. All else equal, there is a strong negative correlation between declining fertility rates and the proportion of Cesarean deliveries.
2. All else equal, there is a higher rate of Cesarean deliveries in areas with higher proportions of obstetricians per 100 persons.

1. What model that we have discussed in class might help to explain these results? Briefly describe the main elements and conclusions of the model.
2. Based on this model, how would you explain finding #1, that the rate of Cesarean deliveries increased as the birth rate declined?
3. Based on this model, how would you explain finding #2, that the rate of Cesarean deliveries is higher in areas where there is a higher proportion of obstetricians in the population?  

Answer 1

a. A multi-variate Regression model is used. With dependent variables as, the rate of cesarean deliveries and independent variables as, 1. The decline in birth rate, 2. Areas with a higher proportion of obstetricians.

b. The rate of cesarean deliveries increased as the birth rate declined because of demand-supply mismatch. The demand for deliveries decreased and the supply remained constant. This led the obstetricians to move to better remunerative procedures like Cesarean.

c. This again the case of a demand-supply mismatch. In this case, the supply is more i.e. proportion of obstetricians. And the demand is more or less constant or declining. Hence, This led the obstetricians to move to better remunerative procedures like Cesarean.