Professors Toshiaki Iizuka and Hitoshi Shigeoka’s paper “Is Zero a Special Price? Evidence from Child Healthcare,” has been published in American Economic Journal: Applied Economics.
Abstract
Do consumers react differently to zero prices? We test the presence of a zero-price effect in child healthcare and find that a zero price is special as it boosts demand discontinuously. A zero price affects resource allocations by encouraging healthier children to use more services and exacerbates behavioral hazard by increasing inappropriate use of antibiotics. A copayment, of as small as USD 2 per visit, alleviates these problems without substantially increasing financial risk. However, a zero price may be used to boost demand for highly cost-effective treatments. Zero and non-zero prices should be strategically chosen to achieve specific goals.