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Physician Income Prediction Errors: Sources and Implications for Behavior

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  • Sean Nicholson
  • Nicholas S. Souleles
Abstract
Although income expectations play a central role in many economic decisions, little is known about the sources of income prediction errors and how agents respond to income shocks. This paper uses a unique panel data set to examine the accuracy of physicians' income expectations, the sources of income prediction errors, and the effect of income prediction errors on physician behavior. The data set contains direct survey measures of income expectations for medical students who graduated between 1970 and 1998, their corresponding income realizations, and a rich summary of the shocks hitting their medical practices. We find that income prediction errors were positive on average over the sample period, but varied significantly over time and cross-sectionally. We trace these results to persistent specialty-specific shocks, such as the growth of health maintenance organizations (HMOs) and other changes across health care markets. Physicians who experienced negative income shocks were more likely to respond by increasing their hours worked, allocating fewer of their work hours to teaching/research and more to patient care, and were more likely to switch specialties.

Suggested Citation

  • Sean Nicholson & Nicholas S. Souleles, 2002. "Physician Income Prediction Errors: Sources and Implications for Behavior," NBER Working Papers 8907, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:8907
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    References listed on IDEAS

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    Cited by:

    1. Sean Nicholson, 2005. "How Much Do Medical Students Know About Physician Income?," Journal of Human Resources, University of Wisconsin Press, vol. 40(1).
    2. Anupa Bir & Karen Eggleston, 2003. "Physician Dual Practice: Access Enhancement or Demand Inducement?," Discussion Papers Series, Department of Economics, Tufts University 0311, Department of Economics, Tufts University.

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    More about this item

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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