Payment Systems, Supplier-Induced Demand, and Service Quality in Credence Goods: Results from a Laboratory Experiment

Manela Karunadasa, Katri K. Sieberg () and Toni Tapani Kristian Jantunen
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Manela Karunadasa: Faculty of Social Sciences, Tampere University, Kanslerinrinne 1, 33014 Tampere, Finland
Katri K. Sieberg: Faculty of Social Sciences, Tampere University, Kanslerinrinne 1, 33014 Tampere, Finland
Toni Tapani Kristian Jantunen: Faculty of Social Sciences, Tampere University, Kanslerinrinne 1, 33014 Tampere, Finland

Games, 2023, vol. 14, issue 3, 1-31

Abstract: This experiment examines the relationship between payment systems and the quality and quantity of services provided in credence goods markets. By using a real-effort task to stimulate the decision making of service providers, the study finds that payment systems do indeed have an impact on service provision. Specifically, providers in fee-for-service systems over-provide, while those in salary systems under-provide services. Additionally, there is a 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 under fee-for-service in comparison to under salary. The study also finds that providers in fee-for-service systems perform more faulty tasks than those in salary, indicating that they may prioritize quantity over quality in their services. As for insurance, the results of this study show no significant effect of insurance on the number of services provided; however, customers without insurance received significantly more faulty tasks. Based on these results, the study concludes that payment systems play an important role in determining the quality and quantity of services provided in credence goods markets. Overall, this study highlights the need for a better alignment between customer needs and services provided under fee-for-service systems.

Keywords: payment systems; credence goods; laboratory experiment; incentives; fee-for-service; salary (search for similar items in EconPapers)
JEL-codes: C C7 C70 C71 C72 C73 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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