Asymmetric Demand Response when Prices Increase and Decrease : The Case of Child Healthcare

This study tests whether demand responds symmetrically to price increases and decreases--a seemingly obvious proposition under conventional demand theory that has not been rigorously tested. Exploiting rapid expansion in municipal subsidies for child healthcare in a difference-in-differences framework, we find evidence against it: when coinsurance, our price measure, increases from 0% to 30%, the demand response is more than twice that to a price decrease from 30% to 0%, a result consistent with loss aversion. This result indicates that, while economists and policymakers pay little attention, the price change direction matters, and that welfare analysis should incorporate this direction