The use of government-mandated report cards to diminish uncertainty about the quality of products and services is widespread. However, report cards will have little effect if they simply confirm consumers' prior beliefs. Moreover, documented "responses" to report cards may reflect learning about quality that would have occurred in their absence ("market-based learning"). Using panel data on Medicare HMO market shares between 1994 and 2002, we examine the relationship between enrollment and quality before and after report cards were mailed to 40 million Medicare beneficiaries in 1999 and 2000. We find evidence that consumers learn from both public report cards and market-based sources, with the latter having a larger impact during our study period. Consumers are especially sensitive to both sources of information when the variance in HMO quality is greater. The effect of report cards is driven by beneficiaries' responses to consumer satisfaction scores; other reported quality measures such as the mammography rate did not affect enrollment decisions.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
11420.
Length: Date of creation: Jun 2005 Date of revision: Handle: RePEc:nbr:nberwo:11420
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Find related papers by JEL classification: D8 - Microeconomics - - Information, Knowledge, and Uncertainty H4 - Public Economics - - Publicly Provided Goods I1 - Health, Education, and Welfare - - Health
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