Between 1970 and 1989 the fertility rate (births/ 100 persons) in the U.S. fell by nearly 15%. Over the same time period the rate of Cesarean deliveries per 100 births quadrupled, from approximately 6% to 24%. There is no convincing evidence that Cesarean deliveries, on average, yield better outcomes for the infant, but they are more risky for the mother (although the absolute risk is extremely low in both cases).

Physician reimbursements for Cesarean deliveries are about 40% higher than reimbursements for vaginal deliveries. Cesarean delivery is a more difficult procedure than vaginal delivery, but the physician workload in terms of time and intensity may actually be greater for a vaginal delivery.

Gruber and Owings (Rand Journal of Economics, 1996) report a strong correlation between the decline in fertility and increase in Cesarean deliveries, controlling for other relevant factors such as hospital characteristics, and birth complications. They also find a higher rate of Cesarean deliveries in areas with higher proportions of obstetricians per 100 persons. Given the model we have discussed in class, how might you explain these results?