Universität zu Köln

Kerschbamer, Rudolf ORCID: 0000-0002-7666-7157, Neururer, Daniel and Sutter, Matthias ORCID: 0000-0002-6143-8706 (2016). Insurance coverage of customers induces dishonesty of sellers in markets for credence goods. Proc. Natl. Acad. Sci. U. S. A., 113 (27). S. 7454 - 7459. WASHINGTON: NATL ACAD SCIENCES. ISSN 0027-8424

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Abstract

Honesty is a fundamental pillar for cooperation in human societies and thus for their economic welfare. However, humans do not always act in an honest way. Here, we examine how insurance coverage affects the degree of honesty in credence goods markets. Such markets are plagued by strong incentives for fraudulent behavior of sellers, resulting in estimated annual costs of billions of dollars to customers and the society as a whole. Prime examples of credence goods are all kinds of repair services, the provision of medical treatments, the sale of software programs, and the provision of taxi rides in unfamiliar cities. We examine in a natural field experiment how computer repair shops take advantage of customers' insurance for repair costs. In a control treatment, the average repair price is about EUR 70, whereas the repair bill increases by more than 80% when the service provider is informed that an insurance would reimburse the bill. Our design allows decomposing the sources of this economically impressive difference, showing that it is mainly due to the overprovision of parts and overcharging of working time. A survey among repair shops shows that the higher bills are mainly ascribed to insured customers being less likely to be concerned about minimizing costs because a third party (the insurer) pays the bill. Overall, our results strongly suggest that insurance coverage greatly increases the extent of dishonesty in important sectors of the economy with potentially huge costs to customers and whole economies.

Item Type:	Journal Article
Creators:	Creators Email ORCID ORCID Put Code Kerschbamer, Rudolf UNSPECIFIED orcid.org/0000-0002-7666-7157 UNSPECIFIED Neururer, Daniel UNSPECIFIED UNSPECIFIED UNSPECIFIED Sutter, Matthias UNSPECIFIED orcid.org/0000-0002-6143-8706 UNSPECIFIED
URN:	urn:nbn:de:hbz:38-270154
DOI:	10.1073/pnas.1518015113
Journal or Publication Title:	Proc. Natl. Acad. Sci. U. S. A.
Volume:	113
Number:	27
Page Range:	S. 7454 - 7459
Date:	2016
Publisher:	NATL ACAD SCIENCES
Place of Publication:	WASHINGTON
ISSN:	0027-8424
Language:	English
Faculty:	Faculty of Management, Economy and Social Sciences
Divisions:	Center of Excellence C-SEB
Subjects:	Economics
Uncontrolled Keywords:	Keywords Language MORAL HAZARD; COMPETITION; ECONOMICS; REPUTATION; DECEPTION; LIABILITY; SERVICES; FRAUD Multiple languages Multidisciplinary Sciences Multiple languages
Refereed:	Yes
URI:	http://kups.ub.uni-koeln.de/id/eprint/27015