We are highly indebted to the support of the Zi-Zentralinstitut für die kassenärztliche Versorgung of the Federal Republic of Germany. We are grateful for valuable comments and suggestions from the editor Luigi Siciliani and two anonymous referees which substantially improved our paper. We also thank Nick Bloom, Amitabh Chandra, John Cawley, Joan Costa-i-Font, Jim Cox, Robert Dur, Randy Ellis, Keith Ericsson, Glenn Harrison, Tal Gross, Tor Iversen, Rudi Kerschbamer, Lawrence Katz, Albert Ma, Henry Mak, Robert Nuscheler, Anne Sophie Oxholm, Daniele Paserman, Jim Rebitzer, Meredith Rosenthal, Tony Scott, John F. Sweeney, John Van Reenen, and participants from seminars and conferences at the AEA Philadelphia, BEH Workshop Atlanta, Boston University (Micro), City University of London, Cornell University, Worldbank Empirical Management Conference, Erasmus University Rotterdam, Helmholtz Institute Munich, Hertie School Berlin, Hochschule St. Gallen, iHEA Boston, Imperial College London, IUPUI Indianapolis, LSE Health Policy Seminar, University of Hannover, University of Innsbruck, University of Lucerne, University of Wuppertal, University of York, ESA European Meeting in Exeter, and at the meeting of the health economics committee of the Verein für Socialpolitik for their comments. Kerstin Dannenberg, Anna Hanel, and Mona Gross provided excellent research assistance. Financial support by the German Research Foundation (grant: BR 2346/2-1/2), the German Federal Ministry of Education and Research (grant: 01EH1602A), and the University of Cologne is gratefully acknowledged. Brosig-Koch also gratefully acknowledges financial support by the funding network Interdisciplinary Social Policy Research of the German Federal Ministry of Labor and Social Affairs (FIS.01.00022.20). Hennig-Schmidt and Wiesen also gratefully acknowledge financial support from the Research Council of Norway (IRECOHEX grant-no.: 231776) through the University of Oslo, Norway.