Small Area Variations and Physician Decision Making: the Case of Depression

Abstract: A large literature on "small area variations" in medical care documents large differences in practice style across areas. It is generally assumed that these variations indicate inefficient provision of care. Using the case of treatment for depression, we show that there is as much variation within areas as across areas. We develop a model of physician behavior which demonstrates that doctor's propensity to experiment varies with individual characteristics of physicians, and that some amount of experimentation (and therefore error) is likely to be necessary in order to match the optimal treatment to each patient.