Working Papers

"Physicians as Persuaders: Evidence from Hospitals in China"

Abstract: I estimate a Bayesian persuasion model to examine how financial incentives and asymmetric information shape physician-patient interactions. This approach offers new insights into the role of insurance. First, the model predicts that patients’ coinsurance moderates physicians’ responsiveness to increases in service fees. This prediction is supported by a difference-in-differences analysis using Chinese health insurance claims data with random variation in physicians’ reimbursement and patients’ coinsurance rates. Second, the model implies that lower coinsurance rates reduce both patient price elasticity and skepticism, increasing the likelihood of physicians misdirecting patients toward unnecessary treatments. Using structural model estimates, I show that for a diagnosis where surgical treatment is discretionary, nearly half of the patients who received surgery would not have done so were they fully informed. Such misdirection from physicians is greater when coinsurance rates decrease, highlighting a new inefficiency channel beyond moral hazard. I decompose the effect of lowering coinsurance into moral hazard and the novel greater misdirection effects. Counterfactual analysis shows that, while patients benefit from lower out-of-pocket costs, greater misdirection nearly offsets these welfare gains.

"Fear and Risk Perception: Understanding Physicians’ Dynamic Responses to Malpractice Lawsuits" (with Hanming Fang, and Ming Li) 

This paper investigates how physicians adjust their clinical decision-making following medical malpractice lawsuits and how these responses are driven by mental rather than financial costs, and do not align with rational expectations. We combine a comprehensive health insurance claim database from a Chinese city with the universe of malpractice lawsuits to study changes in physician behavior and patient outcomes. We find that physicians respond to lawsuits by practicing more conservatively, rejecting high-risk patients, reducing surgery rates, and increasing the use of diagnostic tests and traditional Chinese medicine. These changes are associated with worse patient outcomes, consistent with defensive medicine. The effects are not limited to the directly involved departments but spill over to other departments within the same hospital. In addition, the changes are short-lived, with physicians reverting to their pre-lawsuit treatment patterns in eight weeks. We provide evidence that such responses are likely driven by mental cost (including fear) and deviate from rational expectations. First, physicians in hospitals with more and less frequent lawsuits exhibit similar responses to a new lawsuit; moreover, they respond similarly to winning and losing cases. Second, physicians' reactions to a patient's death vary depending on the recency of a salient lawsuit. Lastly, physician responses are especially strong following criminal violence against physicians, which is emotionally and psychologically salient.

"Welfare Cost of Adverse Selection in the U.S. Consumer Credit Market" 

Abstract: I test for the existence of adverse selection and quantify the resulting inefficiency in the U.S. consumer credit card market. By analyzing unique data from a randomized balance transfer market experiment, I show that conditional on price, higher risk types, both in terms of observable and hidden default risk, are more willing to take up an offer. Furthermore, conditional on taking up an offer, higher risk types are more willing to accept an offer with a higher price. Adverse selection is more severe in the group with a lower FICO score range. By leveraging the exogenous interest rate variations in the market experiment, I estimate an average welfare loss of at least $12 per U.S. credit card holder. In addition, the FICO score captures 90 percent of the welfare loss due to adverse selection.