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Estimating The Heterogeneous Welfare Effects Of Choice Architecture

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  • Jonathan D. Ketcham
  • Nicolai V. Kuminoff
  • Christopher A. Powers

Abstract

We develop a method that embeds signals about consumers’ knowledge to evaluate prospective choice architecture policies. We analyze three proposals for U.S. Medicare prescription drug insurance markets: (i) menu restrictions, (ii) personalized information, and (iii) defaulting consumers to cheap plans. We link administrative and survey data to identify informed enrollment decisions that proxy for preferences of observationally similar misinformed consumers. Results suggest that each policy yields winners and losers, with the menu restrictions harmful to most but personalized information beneficial to most. These results are robust across signals of consumers’ knowledge but differ from the benchmark that excludes such signals.

Suggested Citation

  • Jonathan D. Ketcham & Nicolai V. Kuminoff & Christopher A. Powers, 2019. "Estimating The Heterogeneous Welfare Effects Of Choice Architecture," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 60(3), pages 1171-1208, August.
    • Handle: RePEc:wly:iecrev:v:60:y:2019:i:3:p:1171-1208
    DOI: 10.1111/iere.12382
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    Cited by:

    1. Michael Geruso & Timothy J. Layton & Grace McCormack & Mark Shepard, 2023. "The Two-Margin Problem in Insurance Markets," The Review of Economics and Statistics, MIT Press, vol. 105(2), pages 237-257, March.
    2. Donald S. Kenkel & Sida Peng & Michael F. Pesko & Hua Wang, 2020. "Mostly harmless regulation? Electronic cigarettes, public policy, and consumer welfare," Health Economics, John Wiley & Sons, Ltd., vol. 29(11), pages 1364-1377, November.
    3. Huse, Cristian & Lucinda, Claudio & Cardoso, Andre Ribeiro, 2020. "Consumer response to energy label policies: Evidence from the Brazilian energy label program," Energy Policy, Elsevier, vol. 138(C).
    4. Sai Krishnan S. & Subramanian S. Iyer & Sai Balaji SMR, 2022. "Insights from behavioral economics for policymakers of choice‐based health insurance markets: A scoping review," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 25(2), pages 115-143, June.

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