This paper investigates the impact of an intervention in Chile's fraudulent sick leave market, where 176 physicians were sanctioned for excessive sick leave certificate issuance. Physician decisions are influenced by patient needs and their own incentives, often leading to suboptimal healthcare practices. The study aims to determine if audits and sanctions can alter physician behavior, whether non-sanctioned doctors experience spillover effects, and how these changes affect patient behavior. Using data from approximately 22 million sick leaves issued between January 2018 and October 2022, the study employs a difference-in-differences (DiD) approach alongside a regression discontinuity in time (RDiT) model. Results indicate a significant decline in sick leave issuance among sanctioned doctors, with a 40.49% decrease observed in the DiD model compared to matched physicians, while the RDiT model shows reductions between 50.12% and 34.46%. Additionally, evidence suggests spillover effects, as non-sanctioned doctors’ sick leave issuance decreased by 14.19% to 9.33% post-intervention. On the demand side, high-receiving patients exposed to sanctioned doctors experienced an 18.94% reduction in sick leaves, translating to estimated savings of approximately $12.6 million for the public insurer. However, the findings indicate that these patients may substitute sick leaves imperfectly, revealing potential unintended consequences of the intervention. The paper concludes by suggesting further research into the channels of information transmission and the broader impacts on firm productivity.
Financing Rivals (with Jorge Lemus).
We study how a lender with market power shapes competition between liquidity-constrained rivals. In many settings, including innovation races, procurement, and political contests, the same lender may fund competing firms and choose contract terms strategically. We develop a model in which two firms compete for a prize and a monopolistic lender decides which firms to finance and on what terms. We show that the lender finances both rivals when their internal resources are similar, but finances only the more constrained firm when asymmetries are large. When financing both firms, the lender optimally caps credit rather than fully relaxing financial constraints, because full funding induces an inefficient investment arms race that lowers the surplus available for extraction. We also show that, even when the lender can use fees, caps, and interest rates, an optimal contract sets interest rates to zero and relies on non-distortionary instruments instead. Thus, common lenders do not simply supply funds: they act as strategic arbiters of rivalry, and their effect on competition depends critically on the initial distribution of resources.
We study a market in which the buyer has no information about product quality, while the seller has private probabilistic information about it. Buyers observe price and can procure an inspection, which provides valuable information about the good for sale. With costless inspections, there is no separating equilibrium. We then show that when information acquisition is costly, there is a separating equilibrium that satisfies the intuitive criterion, in which high prices signal high quality and furthermore, the dynamic separating equilibrium showing higher separating prices than the static one. Finally we discuss the implications of time-on-the-market on separating equilibria. Specifically, when there is only one asset on sale over both periods (therefore both price and time-on-the-market can signal quality) there is no separating equilibrium even if single-crossing is satisfied. The key to this result is that the second-period buyer cannot observe why the asset did not sell in the first period. Notably, the failure to sell can be attributed to overpricing or an unfavorable inspection outcome. Therefore the copycat behavior is more attractive to the poor-quality seller because he benefits more from an increase in buyer beliefs than his high-quality counterpart. Allowing only the first-period buyer to acquire information on quality, we show the existence of a separating equilibrium in which high prices and time-on-the-market signal high quality.