E&F Talk Katri Sieberg (Tampere) Decoding the Dynamic Interplay between Payment Systems, Supplier Induced Demand

Decoding the Dynamic Interplay between Payment Systems, Supplier Induced Demand, and Service Quality in Credence Goods Markets: Results from a Laboratory Experiment (with Manela Karunadasa & Toni Jantunen)

External guests are kindly requested to register by sending an informal email to Sven.Fischer@brunel.ac.uk

Abstract: We conducted an economic laboratory experiment to test the relationship between payment systems and the quality and quantity of services provided in credence goods markets. We designed a neutrally framed real-effort task to stimulate the decision-making of service providers in a controlled environment. Overall, our findings suggest that payment systems influence the quantity and quality of services provided. Specifically, we found that providers in fee-for-service systems tend to over-provide services while those in salary systems tend to under-provide services. We observed a notable lack of alignment between the services provided under fee-for-service and the actual needs of customers, resulting in a substantial loss of customer benefits. As a result, we see substantial differences in customer benefit losses between fee-for-service and salary. Looking at the occurrence of faulty tasks, we notice that providers in fee-for-service systems perform more faulty tasks than those in salary. This implies that providers in fee-for-service systems may prioritize quantity over quality in their services, leading to more mistakes. We also looked at the effect of insurance on service decisions make under fee-for-service. We observed that insurance did not have any significant effect on the number of services. However, we found that customers without insurance received more faulty tasks. Overall, our study contributes to the existing literature on the association between payment systems and service provision in credence goods markets.