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Yiyi Zhou is an Associate Professor at Stony Brook University. Professor Zhou's interests are Industrial Organization and Applied Econometrics.
PAPER TOPIC: Double Duty: A Subsidy Design for Quality Promotion and Price Discipline
ABSTRACT: This paper studies how the design of quality-linked subsidies shapes firm behavior in both quality choices and pricing decisions. We examine a major reform in Medicare Advantage that links subsidies to quality through two distinct policy parameters. We develop and estimate a structural model of demand and firm behavior to evaluate the reform, decompose its effects, and compare alternative quality-linked subsidy designs. A central finding is that a subsidy design that links product quality to both the subsidy level and the pass-through from firm prices to subsidized consumer prices can simultaneously raise quality and lower prices.