Do consumers react differently to zero prices? We test the presence of a zero-price effect in child health care and find that a zero price is special as it boosts demand discontinuously. A zero price affects resource allocations by encouraging healthier children to use more services and exacerbates behavioral hazard by increasing inappropriate use of antibiotics. A co-payment, of as small as US$2 per visit, alleviates these problems without substantially increasing financial risk. However, a zero price may be used to boost demand for highly cost-effective treatments. Zero and non-zero prices should be strategically chosen to achieve specific goals.
Iizuka, Toshiaki, and Hitoshi Shigeoka.
"Is Zero a Special Price? Evidence from Child Health Care."
American Economic Journal: Applied Economics,
Insurance; Insurance Companies; Actuarial Studies
State and Local Government: Health; Education; Welfare; Public Pensions
Analysis of Health Care Markets
Health Insurance, Public and Private
Health: Government Policy; Regulation; Public Health
Fertility; Family Planning; Child Care; Children; Youth