ratchet effect



  • noun the effect of the highest previous variable on the current variable, as when wage demands are based on the previous highest wage offered. This is apparent when incomes rise, but when they fall, individuals have difficulty is getting accustomed to the fall and tend to continue spending at the same level.

Health Economics

  • (written as Ratchet Effect)
    An effect in internal market negotiations between purchasers and providers by which the purchaser utilizes knowledge from previous negotiations to ratchet up the expected level of performance at the same price or global budget.