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Payment Scheme Self-Selection in the Credence Goods Market: An Experimental Study

Author

Listed:
  • Hernan Bejarano

    (CIDE and Economic Science Institute, Chapman University)

  • Ellen P. Green

    (School for the Science of Healthcare Delivery, Arizona State University)

  • Stephen Rassenti

    (Economic Science Institute, Chapman University)

Abstract

Given heterogeneity in expert behavior across payment schemes in credence goods markets, it becomes important to understand the consequences of payment scheme selection. To study the effect on customer well being of expert self-selection, we recruited subjects to participate in a real-effort credence good laboratory market. Experts were either randomly assigned or faced with the choice of three payment schemes: fee-for-service, salary, and capitation. We found that experts who selected fee-for-service payment resulted in customers with significantly worse outcomes in comparison with experts who had been randomly assigned to fee-for-service. In contrast, experts who selected salary payment did not change customer outcomes relative to those who were randomly assigned.

Suggested Citation

  • Hernan Bejarano & Ellen P. Green & Stephen Rassenti, 2016. "Payment Scheme Self-Selection in the Credence Goods Market: An Experimental Study," Working Papers 16-04, Chapman University, Economic Science Institute.
  • Handle: RePEc:chu:wpaper:16-04
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    References listed on IDEAS

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    Keywords

    Credence Goods; Self-Selection; Fee-for-service; Capitation; Payment; Sorting;

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