Archives for negotiations



Paying Less … Without Health Insurance

Writing for the Wall Street Journal, Jeffrey Singer describes a patient who came in for a “simple outpatient surgical procedure” and discovered it was cheaper to just ignore his “low-cost ‘indemnity’ type of health insurance policy.”  The patient’s estimated costs had he used his health insurance plan: approximately $20,000 (out of the estimated hospital charge of $23,000).  After speaking to the patient, Singer realized that he wasn’t bound by a “preferred provider” contractual arrangement and offered the patient a solution that saved him $17,000:

I explained that just because he had health insurance didn’t mean he had to use it in every situation. After all, when people have a minor fender-bender, they often settle it privately rather than file an insurance claim. Because of the nature of this man’s policy, he could do the same thing for his medical procedure. However, had I been bound by a preferred-provider contract or by Medicare, I wouldn’t have been able to enlighten him….

Most people are unaware that if they don’t use insurance, they can negotiate upfront cash prices with hospitals and providers substantially below the “list” price. Doctors are happy to do this. We get paid promptly, without paying office staff to wade through the insurance-payment morass.

So we canceled the surgery and started the scheduling process all over again, this time classifying my patient as a “self-pay” (or uninsured) patient. I quoted him a reasonable upfront cash price, as did the anesthesiologist. We contacted a different hospital and they quoted him a reasonable upfront cash price for the outpatient surgical/nursing services. He underwent his operation the very next day, with a total bill of just a little over $3,000, including doctor and hospital fees. He ended up saving $17,000 by not using insurance.

(HT: Jason Hirschhorn)



When Women Don’t Negotiate

The unwillingness of women to negotiate their salaries is often blamed for the persistent male-female wage gap.  A new paper (abstractpdf) from Freakonomics favorite John List (and coauthor Andreas Leibbrandt) uses a  field experiment to explore the issue:

By using a natural field experiment that randomizes nearly 2,500 job-seekers into jobs that vary important details of the labor contract, we are able to observe both the nature of sorting and the extent of salary negotiations. We observe interesting data patterns. For example, we find that when there is no explicit statement that wages are negotiable, men are more likely to negotiate than women. However, when we explicitly mention the possibility that wages are negotiable, this difference disappears, and even tends to reverse. In terms of sorting, we find that men in contrast to women prefer job environments where the “rules of wage determination” are ambiguous. This leads to the gender gap being much more pronounced in jobs that leave negotiation of wage ambiguous.

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Men, Women, and Taxi Fare

A study on the taxi market in Lima, Peru examines price differences between men and women. Taxi prices in Lima are set by bargaining, and the market of sellers is extremely competitive. The authors initially found, surprisingly, that “men face higher initial prices and rejection rates.”

However, when the experiment was performed again with a strategic move, the discrimination disappeared:

Passengers in this study begin by rejecting a first taxi to send a signal of low valuation to a second (waiting) taxi which they then negotiate with. Despite passengers otherwise using an identical bargaining script, we find that negotiated outcomes at the second taxi are gender blind. The second taxi treats men and women the same.

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The Economics of a Ransom

In The AtlanticMegan McArdle traces the economics of ransom negotiation:

Economists would describe hostage negotiation as a bilateral monopoly price negotiation that is structurally just a special case of chicken. That is, unlike a barrel of oil or a freight car full of soybeans which can trade on an extremely liquid market with innumerable buyers and sellers, a hostage has exactly one seller (the kidnappers) and exactly one buyer (the employer and/or family of the hostage). When there is only one buyer, the opportunity cost for ransoming the hostage is zero.

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NBA Fans Give the League a Predictable Present on Christmas

Before labor peace came to the NBA, it was not uncommon to hear stories that the lockout was going to negatively impact fan interest in the game (here is one example in this genre). The story basically went as follows:

1. Fans become angry when the games are taken away.
2. The longer fans go without games, the angrier they become.
3. Stay away too long and the angry fans will never come back.

This story actually gets repeated every time a labor dispute that taken away games in North American sports. And the story certainly seems plausible.

A few years ago, though, Martin Schmidt and I investigated the impact disputes have upon fan attendance; and much to our surprise (yes, we tended to believe the stories sports writers had told us for years) we failed to find an effect. Attendance in the major North American sports is not statistically impacted by labor disputes. Read More »



Economist Kevin Murphy Talks NBA Lockout Negotiations

We’ve written a lot about University of Chicago economist Kevin Murphy. He teaches at the Becker Center on Chicago Price Theory, where Steve Levitt is the director. Murphy was a MacArthur Genius Fellow back in 2005, and Levitt readily admits that Murphy is the smartest person he knows.

This fall, Murphy has been working with the NBA players union in its negotiations with team owners over the NBA lockout. Steve Aschburner of NBA.com sat down with Murphy for a lengthy and very interesting Q&A on the tricky economics of the NBA, and what role Murphy is playing. Here are a few highlights: Read More »