My research is primarily in empirical microeconomics. While my main research field is industrial organization (IO), public and health economics also figure prominently in my work. A common theme across my research is that I generally focus on strategic choices made by consumers and firms. Some of the topics in my recent work include: how buyers and sellers respond to or use charitable donations in augmenting standard market transactions, how firms’ and patients’ choices affect outcomes in healthcare markets, and how price discrimination affects consumers. While working within these topics, I have collected or generated new data for many of the empirical analyses. Data are generally very scarce for IO research, so introducing new data is a central contribution of my research activities.
In recent years, my main research area has been on the impact of charity in traditional transactions between consumers and firms. While most of my research in this area is empirical, my first paper on the topic (with Maxim Engers, International Economic Review 2007) is a theoretical study of equilibrium bidding and revenue in auctions where bidders care about the amount of revenue raised as well as winning the auction. This may occur, for example, when a school or nonprofit organization holds an auction as a fundraising event. I find that relative to standard auctions, charity auction revenue is especially sensitive to differences in bidding rules, and the auctions with the greatest revenue are those that emphasize opportunities for one bidder to affect another bidder’s payment.
My next projects in this area marked the beginning of my empirical work using data from eBay. Along with its large volume of conventional sales, eBay offers a charity program called Giving Works in which sellers can donate 10% to 100% of a sale’s revenue to a charity of their choosing. Dan Elfenbein and I collected data from eBay’s website so we could compare bidding behavior in charity and non-charity auctions, and also comment on the general prospects for firms’ charity programs. In our main paper from this data opportunity (Elfenbein and McManus, American Economic Journal: Economic Policy 2010), we analyze a dataset of matched charity and non-charity auctions of otherwise-identical items, and we find that consumers are willing to pay a modest but statistically significant premium for charity items. This premium, however, is not sufficiently large to allow sellers who donate a fraction of their revenue to profit, on net, from the program.
Other recent work suggests that consumers’ responses to charity in markets can be quite complex (McManus and Bennet, Journal of Public Economics 2011). This research reports the results from a field experiment that a co-author and I ran at the online store of a large non-profit organization (NPO). In the experiment we varied the size of a donation that an anonymous outside group (actually us) would pay to the NPO when a consumer’s purchase met a dollar value threshold. To our surprise, consumers’ responses did not increase in the value of the outside donation. While large donations lead consumers to increase their purchases in a way that suggested they were paying sharp attention to the terms of our experimental offer, small donations were effective in modestly boosting purchases regardless of whether the terms of our offer mattered for the consumers’ choices. These results suggest a puzzle in how difficult it may be to control consumers’ subjective responses to charity offers by firms.
In my most recent work (Elfenbein, Fisman, and McManus, Review of Economic Studies 2012), I have continued studying the tie between charity and signaling. To conduct the analysis my coauthors and I worked directly with eBay to obtain a large data extract that contains instances in which a single eBay seller offers the same product with and without a charity pledge. (For example, this may happen when a seller has multiple units of the same good to sell.) Within these matched clusters of products, we find substantial variation across sellers in the size of the charity premium, with low-experience sellers receiving the largest benefits. We interpret this as indicating that charity pledges can signal seller quality or trustworthiness to consumers, and this signal is most useful when a seller does not have a lengthy record of successful past transactions. To further support this signaling interpretation, we present evidence that the size of the charity premium, while positive, is small enough to prevent opportunistic sellers from offering charity items, and moreover the charity signal is informative in that highly charitable sellers are significantly less likely to receive complaints from their customers. Looking beyond eBay, our results may explain what types of firms are most likely to invest in charity programs.
I have also conducted research on healthcare markets. These studies are generally tied to my IO interests through a focus on the consequences of individual healthcare firms’ choices. My work on healthcare currently covers two areas of medical care. The first medical area is the treatment of drug and alcohol abuse. While there is considerable research and debate on how to model addicts’ behaviors, my objective has been to demonstrate that there is room for research progress in this health area by studying the more conventional decisions on the treatment side of the market. To facilitate the study of individual firms’ strategic choices across a variety of markets, I have focused on the localized markets for Outpatient Substance Abuse Treatment (OSAT) in rural US counties. In this paper (with Cohen and Freeborn, International Economic Review, forthcoming) we examine whether public provision of OSAT crowds-out private treatment. We execute this study using recently-developed techniques for estimating discrete games with multiple equilibria, which allow us to describe how frequently a public OSAT clinic could be removed from a market with and without spurring a private clinic to provide treatment in the public clinic’s absence. We find that observed public clinics often crowd-out private clinics, but there are markets with certain demographic characteristics (e.g. low median income) where a public clinic is necessary for any treatment to be provided.
The second medical area I have studied is infertility treatment. Together with co-authors, I have collected data on In Vitro Fertilization (IVF) clinics in the U.S. Although IVF is the most technologically advanced infertility treatment available, it is an expensive procedure that is more likely to fail than succeed, and its outcome is determined in part by choices the patients and their doctors make within treatment. Bart Hamilton and I (Health Economics 2011) estimate the impact of mandated insurance coverage on women’s use of IVF, their choices within treatment, and treatment outcomes. Insurance coverage has the benefit of expanding access to IVF while also tempering patients’ incentive to choose an aggressive course of treatment that can increase the chance of successful IVF but at the expense of a potentially dangerous high-order pregnancy. Together with Juan Pantano, Bart Hamilton and I are continuing our research on IVF with an analysis of individual treatment histories of 1700 women who received IVF at Washington University’s fertility clinic. These detailed data allow us to study how individual women’s IVF treatment choices vary with their demographics, fertility characteristics, and personal treatment histories. Our opportunity to work with patient-level data is unique among economic studies of IVF choices. We are currently constructing an estimable dynamic choice model that will allow us to predict how women’s choices and birth outcomes would be affected by changes to insurance policy, treatment practices, and technological progress.
Price discrimination is the final area in which I have completed research (see RAND Journal of Economics 2007). In this work I estimate consumers’ utility from a variety of coffee products at specialty shops such as Starbucks, and I use these estimates together with cost data to calculate the efficiency properties of market allocations under the shops’ nonlinear pricing schedules. The allocations of products to consumers, a central aspect of nonlinear pricing theory, had not yet been tested empirically because of data limitations. The theory predicts that the highest-demand consumers will receive products that are “just right” in size or quality (despite a high price), while lower-demand consumers opt to purchase products that are too small or too low-quality relative to what they would receive in a competitive market. My results indicate that the allocations fit the theory closely, even in a relatively low-stakes beverage market.
In addition to continuing work in the areas above, I have started projects in new subject areas. For example, together with my co-authors on eBay-related projects, I am extending my relationship with eBay to study its seller quality certification system. This project extends my past work on the interaction between charity and signaling to incorporate broader topics on information in markets. To encourage use of its marketplace, eBay rewards high-quality sellers with public certificates of their status. My co-authors and I are focusing on how the impact of quality certification varies across markets with different levels of quality risk for consumers, and also how concentrated possession of certifications affects overall market structure, prices, and welfare. Our preliminary results indicate that eBay consumers significantly prefer purchasing from certified sellers, and it is especially valuable for a seller to be certified when there are few other certified sellers offering similar products.
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A complete list of Professor McManus’ works and proper citations can be found on his website, http://www.unc.edu/~mcmanusb/.