1. 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) Tarek Jaber López (Un. Jaume I) Can Co-Payment Curb Over-Consumption? Experimental Evidence 26/06/2013

2. 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. 26/06/2013

3. The Rationale of Co-Payment (1) 26/06/2013 … (even Barcelona) 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?

4. The Rationale of Co-Payment (2) 26/06/2013 … (even Barcelona) 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.

5. 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.

6. 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.

7. 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.

8. 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.

9. 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.

10. 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.

11. 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 X i is what player i withdraws, player 1 gets: X 1 + 1/5 (100 - 2X 1 - 2X 2 - 2X 3 - 2 X 4 - 2 X 5 )

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

13. 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.

14. Average extraction, by treatment

15. Common fund after extraction

16. Results 1.Withdrawals increase during the first 15 rounds. Usually explained in terms of conditional cooperation. 2.No single round shows significant differences between B and BC. The introduction of co-payment does not succeed in improving efficiency.

17. 3.Withdrawals are lower in the C treatment. If it’s there from the outset, the existence of a price does reduce over-consumption. 4.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. Results

18. 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.

19. 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