Is Zero a Special Price? Evidence from Child Healthcare
52 Pages Posted: 13 Dec 2018 Last revised: 24 Oct 2020
Date Written: September 24, 2020
Do consumers react differently to zero prices? We test the presence of a zero-price effect in child healthcare and find that a zero price is indeed special and 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 copayment, as small as 2USD per visit, alleviates these problems without increasing financial and health risks. However, a zero price may be used to boost demand for highly cost-effective treatments. Strategically choosing zero and non-zero prices is a key to improving welfare.
Keywords: Zero-price Effects, Patient Cost-Sharing, Children, Healthcare Utilization, Price Elasticity, Moral Hazard
JEL Classification: I18, I13, I11, J13
Suggested Citation: Suggested Citation