Abstract
The incentive of physicians in recommending unnecessary medical treatments to patients constitutes an important agency problem in health care. This paper discusses this issue by providing a theoretical model with one physician and a mass of patients who are uncertain about an underlying state of disease. The physician provides a recommendation based on an informative experiment which always reveals the state of disease, but not always the healthy state. This may induce some people undertaking unnecessary treatment as well as some others refraining from doing so when it is needed. A policy intervention imposing a minimum information standard is very effective to reduce overtreatment but does not influence the number of patients who receive credible information. Moreover, we show the unintended consequences of releasing relevant news with or without the policy intervention.