Working papers

The Response to Dynamic Incentives in Insurance Contracts with a Deductible: Evidence from a Differences-in-Regression-Discontinuities Design

joint with Suraj Upadhyay and Martin Salm

September 2021

C.E.P.R. Discussion Paper 14552 and IZA Discussion Paper No. 13108

We develop a new approach to quantify how patients respond to dynamic incentives in health insurance contracts with a deductible. Our approach exploits two sources of variation in a differences-in-regression-discontinuities design: deductible contracts reset at the beginning of the year, and cost-sharing limits change over the years. Using rich claims-level data from a large Dutch health insurer we find that individuals are forward-looking. Changing dynamic incentives by increasing the deductible by 100 euros leads to a reduction in healthcare spending of around 3% on the first days of the year and 6% at the annual level. We find that the response to dynamic incentives is an important part of the overall effect of cost-sharing schemes on healthcare expenditures—much more so than what the previous literature has suggested.

This figure shows the evolution of the price patients paid for a dermatological procedure. The treatment group had transparent prices from week 31 onward, while the control group did not.

Increasing price transparency in the Dutch health care market does not affect provider choice

joint with Maciej Husiatyński and Misja Mikkers

March 2021

C.E.P.R. Discussion Paper 15981

Price transparency is often viewed as an effective way to encourage price shopping and thereby lower health care expenditure. Using individual claims data for 6 frequent, non-emergency dermatological procedures, we estimate the short-run effect of unexpected publication of prices by a major Dutch health insurer on spending and provider choice. Visits to the price transparency website surged, but spending, the likelihood to visit a new provider, distance traveled, and type of provider visited remained unaffected.

This figure shows that households with at least one retired individual spend more on grocery goods.

Consumer Time Budgets and Grocery Shopping Behavior

joint with Bart Bronnenberg and Yan Xu

revised version, December 2021

C.E.P.R. Discussion Paper 13302, November 2018

We study whether and how the availability of incremental time associated with retirement and unemployment affects the types of products households buy. For this, we develop a new theoretical model of the composition and size of the grocery shopping basket subject to money and time constraints. We construct a novel household panel data set that combines purchase records for grocery goods with information on labor market status and other demographics. We use the data to document that, in line with predictions from the model, consumers buy more varieties and generally shift their spending into products that take more time to turn them into consumption experiences.

Our minute-level data allow us to nonparametrically estimate the effect of an advertisement on online sales. Here we see that the effect of advertisements reaching many people lasts for about 30 minutes.

Advertising as a reminder: Evidence from the Dutch State Lottery

joint with Chen He

revised version, November 2020

C.E.P.R. Discussion Paper 12948 (version 3: November 2020), TILEC Discussion Paper 2018-018, and CESifo WP no. 7080, May 2018

Consumers who intend to buy a product may forget to do so. Therefore, they may value being reminded by an advertisement. This phenomenon could be important in many markets, but is usually difficult to document. We study it in the context of buying a product that has existed for almost 300 years: a ticket for the Dutch State Lottery. This context is particularly suitable for our analysis, because the product is simple, it is very well-known, and there are multiple fixed and known purchase cycles per year. Moreover, TV and radio advertisements are designed to explicitly remind consumers to buy a lottery ticket before the draw. This can conveniently be done online. We use high frequency advertising and online sales data to measure the effects of TV and radio advertising. We show that advertising effects are short-lived and the bigger the less time there is until the draw. This is consistent with the predictions of a simple model in which consumers suffer from limited attention and advertising affects the probability that consumers think about buying a lottery ticket and otherwise value buying it as late as possible. We provide direct evidence that advertising does not only affect the timing of purchases, but also leads to market expansion. Finally, we estimate a dynamic structural model of consumer behavior and simulate the effects of a number of counterfactual dynamic advertising strategies. We find that total sales would be 35 percent lower without advertising and that shifting advertising to the week of the draw would lead to a 16 percent increase in sales. This means that consumers react strongly to reminder advertising and wish to be reminded late, when their intention to buy is higher.

Price Competition in Two-Sided Markets with Heterogeneous Consumers and Network Effects

joint with Lapo Filistrucchi

NET Institute Working Paper #13-20

We model a two-sided market with heterogeneous customers and two heterogeneous network effects. In our model, customers on each market side care differently about both the number and the type of customers on the other side. Examples of two-sided markets are online platforms or daily newspapers. In the latter case, for instance, readership demand depends on the amount and the type of advertisements. Also, advertising demand depends on the number of readers and the distribution of readers across demographic groups. There are feedback loops because advertising demand depends on the numbers of readers, which again depends on the amount of advertising, and so on. Due to the difficulty in dealing with such feedback loops when publishers set prices on both sides of the market, most of the literature has avoided models with Bertrand competition on both sides or has resorted to simplifying assumptions such as linear demands or the presence of only one network effect. We address this issue by first presenting intuitive sufficient conditions for demand on each side to be unique given prices on both sides. We then derive sufficient conditions for the existence and uniqueness of an equilibrium in prices. For merger analysis, or any other policy simulation in the context of competition policy, it is important that equilibria exist and are unique. Otherwise, one cannot predict prices or welfare effects after a merger or a policy change. The conditions are related to the own- and cross-price effects, as well as the strength of the own and cross network effects. We show that most functional forms used in empirical work, such as logit type demand functions, tend to satisfy these conditions for realistic values of the respective parameters. Finally, using data on the Dutch daily newspaper industry, we estimate a flexible model of demand which satisfies the above conditions and evaluate the effects of a hypothetical merger and study the effects of a shrinking market for offline newspapers.