Financial Conflicts of Interest in Medicine*

We use the geographic distance between a doctor’s office and drug company headquarters to instrument for the likelihood of pecuniary transfers, such as meals or speaking fees. Doctors tilt prescriptions in favor of the paying firm’s drugs, shifting away from both branded and generic substitutes. Larger transfers cause larger shifts in prescriptions. We explore two potential explanations: 1) persuasion and/or information flow, and 2) rent seeking. Payments increase prescriptions of branded drugs over generic equivalents, situations where information cannot play a large role. However, doctors residing in states known to be corrupt in other ways (e.g., electoral fraud) are much more sensitive to payments from the drug industry. * We have benefited from discussions with Anirban Basu, Daniel Carlat, Doug Conrad, Raymond Fisman, Dan Hamermesh, Ryan Hansen, Sheridan Titman and seminar participants at Harvard University, the University of Southern California, and the University of Washington. ‡ Contact: Joseph Engelberg, Rady School of Management, University of California at San Diego, (Email) [email protected] (Tel) (1) 858-822-7912; Christopher A. Parsons, Rady School of Management, University of California at San Diego, (Email) [email protected] (Tel) (1) 858534-8782; Nathan Tefft, School of Public Health, University of Washington, (Email) [email protected] (Tel) (1) 206-221-5897.