APES – Braga, 11 October 2013 Gianandrea Staffiero (CRES-Universitat Pompeu Fabra-Matrix)

Can Co-Payment CurbOver-Consumption?Experimental Evidence APES – Braga, 11 October 2013 Gianandrea Staffiero (CRES-Universitat Pompeu Fabra-Matrix) Aurora Garcia Gallego (Un. Jaume I) Nikos Georgantzis (Un. Jaume I, Un. Granada) TarekJaber López (Un. Jaume I)

Introduction • When co-payment makes sense. Especially in healthcare. • Policy and users’ trade-offs involved in consumption. • Behavioural effects and experimental analysis of the effect of a small charge. • Evolution of appropriation of common resources. • Conclusions.

The Rationale of Co-Payment (1) • Reduction of public expenditures. • Good reason in financial troubles? • Transfer of resources to reduce public deficit... From whom? • Is a transfer from (e.g.) healthcare users to the State politically acceptable? • Equity implications? Are users richer? Are users better-off in general? … (even Barcelona)

The Rationale of Co-Payment (2) 2. Rationalise demand and reduce over-consumption. • “Social optimum”: • marginal benefit = marginal cost • BUT: Users do not bear costs. • Over-consumption • Co-Payment goal: alignment of private costs to social costs. … (even Barcelona)

Caveats • Outside the scope of this paper: • User information may be limited. • User and decision-maker may not coincide (e.g. Patient vs Prescriber). • Short-term savings may imply long-term costs.

Policy trade-off • Policy-maker trade-off on co-payments: • Equity: imposing a financial burden on the ill. • Efficiency: aligning costs and benefits. • Very low benefits even small charges avoid over-use. • Very high user charges risk of under-consumption.

Users’ trade-off • Should I use the public good? • Individual incentive: YES. • Social welfare perspective: NO. • If Co-Payment = Marginal Costs, trade-off is solved. • Political compromise may lead to preserving users’ trade-off with user charges < costs.

Behavioural economics effects • Charges preserving individual/collective welfare trade-off. • “Pain of paying” (Prelec, Loewenstein): big difference between having it free or paying a small amount co-payment should succeed. • Motivational Crowding-out (Frey): as you make me pay, I don’t cooperate towards public goals co-payment is a bad idea.

Experimental Analysis • Does a small price, leaving users’ trade-off intact, curb over-consumption? • “Common-pool resource” game: selfish withdrawal of public resources versus cooperative restraint. • Controlled environment, perfect information, linearity in payoff determination to ensure that subjects can easily grasp the main aspects of game.

Experimental Procedures • 125 students: 35 in Baseline (B), 30 in Co-Payment (C), 60 in Baseline+Co-Payment (BC)- • University Jaume I (Castelló, Valencia), July 2012. • No use of wording “Co-Payment” in the instruction. • 30 rounds in each session, unknown to subjects • Random (re-)matching in groups of 5. • Payment according to payoff in a single round, randomly selected at the end of the experiment.

Experimental Design - Baseline • Baseline: • Common fund worth €100. • Each subject can withdraw up to €10. • Each euro withdrawn reduces the funds by €2. • What remains in the fund is shared equally among the five members of the group. • If Xi is what player i withdraws, player 1 gets: • X1 + 1/5 (100 - 2X1 - 2X 2 -2X 3 - 2X 4- 2X 5)

Experimental Design – Co-payment • Treatment C: to withdraw €1, you have to pay €0.1, that enters the fund. • Player 1 gets: • X1 - 0.1 X1 + 1/5 [(100 - 2X1 - 2X 2 -2X 3 - 2X 4- 2X 5) + 0.1·(X1 + X 2 +X 3 + X4 + X5 )] • BC: 15 rounds as in B, then announcement of rules as in C.

Predictions • Under standard payoff maximization assumptions, in the subgame perfect Nash equilibrium all members withdraw 10, every round, in all three treatments. • Pareto inefficiency: they all end up with 10, whereas they would get 20 each cooperating.

Average extraction, by treatment

Common fund after extraction

Results • Withdrawals increase during the first 15 rounds. • Usually explained in terms of conditional cooperation. • No single round shows significant differences between B and BC. The introduction of co-payment does not succeed in improving efficiency.

Results • Withdrawals are lower in the C treatment. If it’s there from the outset, the existence of a price does reduce over-consumption. • Withdrawals continue to increase in rounds B and BC, but not in C! • In C, increase is limited to the first few rounds. Then withdrawals levels remain more or less constant.

Main findings • People used to appropriate public goods does not refrain to do so after the introduction of a small charge that does not change individual incentives. • On the other hand, there is no crowding-out: the presence of a price from the beginning does reduce appropriation.

Discussion • A small price gives a hint towards refraining from the full appropriation of a common resource. • Having a resource for free spoils the effectiveness of small charges in curbing over-consumption. • Further research: • Stochastic benefits • Inequality and co-payment

APES – Braga, 11 October 2013 Gianandrea Staffiero (CRES-Universitat Pompeu Fabra-Matrix)