In settings where public services are capacity-constrained and timely access is critical, such as medical appointments, passport renewals, or visa processing, priority pricing is often used to allocate access. By allowing individuals to pay extra for faster service, this pricing system aims to ensure that those who value or need the service most receive it first. However, the approach assumes that individuals will always misreport their level of need or urgency if they stand to gain from it. But what if people are already inclined to tell the truth?
A new study by Prakriti Thami, PhD candidate at Lund University, examines whether truth-telling preferences affect how well these pricing systems work. The study finds that the effectiveness of priority pricing depends not only on the financial incentives it creates but also on how truthful people are and what they believe about others’ truthfulness. In a theoretical model, the study shows that priority pricing improves consumer welfare only when a sufficiently large share of individuals would misreport their need in its
absence. When most people are already inclined to tell the truth, introducing a fee can backfire, penalizing truthful individuals with urgent needs and ultimately reducing overall welfare. The finding implies that while priority pricing may work well in settings where truth-telling is low, it can reduce welfare in populations where truth-telling is already common.
To test this, a pre-registered online experiment was conducted in which 696 participants simulated booking an appointment by reporting their privately known level of need, urgent or non-urgent, under one of two pricing conditions. In the priority pricing condition, a fee was charged only if participants reported urgent need. In the free condition, all appointments were free regardless of the response. Participants were also randomly assigned to either a high- or low-truthfulness group, where they received prompts suggesting that most others in their group were likely to be either truthful or non-truthful. The results indicate that priority pricing significantly reduced misreporting: while around 46% of non-urgent participants in the free condition overstated their need, this dropped to 27% under priority pricing. However, the mechanism did not eliminate misrepresentation entirely. Interestingly, there was no significant difference in the effect between groups with high or low tendencies to tell the truth. What stood out, however, was the significant role that participants’ beliefs about others played in shaping behavior under priority pricing. When participants believed others were likely to be truthful, they were more inclined to report their own level of need truthfully. Conversely, when they believed others were unlikely to be truthful, they were more likely to misreport their needs.
These findings have important policy implications. First, the proportion of non-truthful individuals required for priority pricing to improve welfare may be substantially higher in practice than theory predicts, given that some misreporting persists even with incentives. Second, measures that influence people’s beliefs about others’ truthfulness, such as public awareness campaigns or transparency initiatives, could improve the effectiveness of such systems by encouraging truthful reporting.
