Payment scheme self-selection in the credence goods market: An experimental study

Abstract

Given heterogeneity in expert behavior across payment schemes in credence goods markets, it is important to understand the consequences of payment scheme selection on market outcomes. To study the effect that expert payment selection has on customer well-being, we recruited subjects to participate in a real-effort credence goods laboratory game. Experts were either randomly assigned or faced with the choice of three payment schemes: fee-for-service, salary, and capitation. We found that when experts selected fee-for-service payment customers experience significantly worse outcomes than when experts were randomly assigned to fee-for-service. In contrast, whether experts selected or were randomly assigned to salary payment, customer outcomes did not change.