The Impact of Liability on the Physician Labor Market

This study examines the impact of malpractice reforms on physician behavior using a new measure of liability risk and a nationally representative, individuallevel data set on physician behavior. We match our liability measure to data on physician behavior from the Physician Practice Costs and Income Survey (PPCIS). Data from the PPCIS bracket a period of substantial state-level legal reform between 1983 and 1988, which provides identifying variation in our liability measure. We estimate the impact of liability reform on hours worked. We find an estimated elasticity of hours worked to liability exposure of .285 for the full sample of physicians. The effect for physicians ages 55 or older is much larger: we find an elasticity of 1.224 for this category. We find that an increase in $1 of expected liability is associated with a $.70–$1.05 increase in malpractice premiums.