A new test for supplier-inducement and application to the Canadian market for dental care.

The hypothesis that dentists do not induce demand for their services is tested using reduced form estimates of the price elasticity of demand. If demand is autonomous, shifts in supply for whatever reason should generate equivalent estimates provided access costs change proportionately with shifts in supply. If demand inducement is present demand can appear to be very elastic, or very inelastic, depending on what is causing the shift in supply. Each of three applications of this test, conducted in the context of jointly estimated fee and quantity equations using annual Canadian data for 1956-1989, rejects the no inducement hypothesis.