OBJECTIVES: Physicians’ generic pharmaceutical adoption are responsible for patients, insurance payers, and their own interests. This study examines this double agency problem for physicians by using Taiwanese data, because physicians can both prescribe and dispense drugs in Taiwan. The universal health care system in Taiwan also causes the problem to be a public concern.   METHODS: This study begins with a theoretical model of physicians’ prescription behavior that includes both the patients’ and physicians’ utilities, and government's share of patients’ medical expenditure. To empirically estimate this model by using the Taiwanese data, a panel framework is structured by adopting visit-physician-drug as a unit of observation. Empirical results were obtained after controlling the physicians’, patients’, and hospitals’ characteristics; and time-, location-, and drug-fixed effects. The physicians’ unobserved, time-invariant heterogeneity was also controlled by applying Chamberlain’s correlated random effects probit model. RESULTS: The empirical results show that a larger price difference between brand-name and generic drugs increases physicians’ likelihood for prescribing generic prescriptions. However, for physicians in hospitals, this effect decreases as the payer’s cost share percentage increases. These results indicate that physicians’ prescriptions decision internalize patients’ utility but not the payer’s cost. This study also demonstrates that physicians who are more responsive to profits prescribed more generic drugs, including owners of hospitals and clinics, and physicians in clinics and private institutions. However, this effect decreases as the number of competitors in the drug market increases. CONCLUSIONS: The reported findings suggest that physicians’ double agent role in a universal health care system is responsible for part of the pharmaceutical expenditure in Taiwan, where brand-name drugs were probably prescribed more than necessary. Taiwanese government is advised to encourage generic prescriptions by providing incentives for physicians, increasing the patients’ share of their medication cost, and increasing patients’ and physicians’ access to the information on generic drugs.