The influence of cost-of-service-provision, program and subsidy-related information on reference price levels

Abstract

This study considered ways in which price expectations (reference prices) might be influenced through managerial intervention so that expected prices could be made consistent with actual costs associated with service provision. The loss/benefit to self/other dilemma is central to consideration of price expectations in the public sector. Research consistently indicates that individuals choose strategies that maximize benefit. In situations involving the provision of public goods, however, this benefit is not always personal. The welfare of friends, family and other in group members may influence the way in which the individual defines benefit. This study randomly assigned subjects to one of six groups. Two control groups received cost-of-service provision and/or program information. Four treatment groups received information relating to benefit or loss to self/other in addition to cost-of-service-provision and program information. It was hypothesized that information relating to benefit/loss to self or other would alter the context in which the cost and service provision information was considered thereby facilitating changes in reference prices. Information relating to benefit to others was most influential in elevating reference price levels. This finding represents a "good Samaritan" response that is of considerable interest to the administrator..