Working Paper: NBER ID: w11420
Authors: Leemore Dafny; David Dranove
Abstract: The use of government-mandated report cards to diminish uncertainty about the quality of products and services is widespread. However, report cards will have little effect if they simply confirm consumers' prior beliefs. Moreover, documented "responses" to report cards may reflect learning about quality that would have occurred in their absence ("market-based learning"). Using panel data on Medicare HMO market shares between 1994 and 2002, we examine the relationship between enrollment and quality before and after report cards were mailed to 40 million Medicare beneficiaries in 1999 and 2000. We find evidence that consumers learn from both public report cards and market-based sources, with the latter having a larger impact during our study period. Consumers are especially sensitive to both sources of information when the variance in HMO quality is greater. The effect of report cards is driven by beneficiaries' responses to consumer satisfaction scores; other reported quality measures such as the mammography rate did not affect enrollment decisions.
Keywords: Medicare; HMOs; Report Cards; Consumer Learning; Quality Information
JEL Codes: D8; H4; I1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Report cards (Y10) | Medicare HMO enrollment (I13) |
| Market-based learning (D43) | Medicare HMO enrollment (I13) |
| Report cards (Y10) | Consumer satisfaction ratings (D12) |
| Consumer satisfaction ratings (D12) | Medicare HMO enrollment (I13) |
| Variance in HMO quality (I13) | Consumer responsiveness to quality information (L15) |
| Report cards (Y10) | Market shares (L17) |
| Market-based learning (D43) | Market shares (L17) |