Does the Geographic Distribution of Physicians Reflect Market Failure?: An Examination of the New Zealand Experience, 1981–87

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Abstract
Two main approaches have dominated economic theories of physician location; the traditional neoclassical view, in which it is assumed that the medical marketplace is truly competitive, and the provider-inducement model, in which it is predicted that more physicians increase rather than decrease the price of their services. In terms of their distributional implications both models suggest that an increased supply of physicians will initiate their diffusion, but at different rates. In this paper, the relevance of both models in terms of understanding the changing distribution of general practitioners in New Zealand between the years 1981 and 1987 is examined. Despite a substantial increase in the supply of physicians and their services, only modest improvements occurred in their regional distribution, and urban—rural differences got worse. Even conditions of near surplus within Auckland, New Zealand's largest metropolitan area, produced only marginal improvements in the availability of care. The results suggest that the traditional reliance of primary health-care policy in New Zealand on market-based solutions to improve geographic accessibility would seem to be misplaced and support current policy moves on the part of the state to regulate the distribution of physicians and their expenditure.

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