Asymmetric Demand Response When Prices Increase and Decrease: The Case of Child Health Care

Abstract 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 the rapid expansion in Japanese municipal subsidies for child health care in a difference-in-differences framework, we find evidence against conventional demand theory: 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%. This result indicates that while economists and policymakers pay little attention, price change direction matters and should be incorporated into welfare analysis.