Censored Quantile Instrumental Variable Estimates of the Price Elasticity of Expenditure on Medical Care

45 Pages Posted: 20 Jun 2009 Last revised: 21 Sep 2010

See all articles by Amanda Kowalski

Amanda Kowalski

University of Michigan at Ann Arbor - Department of Economics

Date Written: June 2009

Abstract

The extent to which consumers respond to marginal prices for medical care is important for policy. Using recent data and a new censored quantile instrumental variable (CQIV) estimator, I estimate the price elasticity of expenditure on medical care. The CQIV estimator allows the estimates to vary across the skewed expenditure distribution, it allows for censoring at zero expenditure nonparametrically, and it allows for the insurance-induced endogenous relationship between price and expenditure. For identification, I rely on cost sharing provisions that generate marginal price differences between individuals who have injured family members and individuals who do not. I estimate the price elasticity of expenditure on medical care to be stable at -2.3 across the .65 to .95 conditional quantiles of the expenditure distribution. These quantile estimates are an order of magnitude larger than previous mean estimates. I consider several explanations for why price responsiveness is larger than previous estimates would suggest.

Suggested Citation

Kowalski, Amanda, Censored Quantile Instrumental Variable Estimates of the Price Elasticity of Expenditure on Medical Care (June 2009). NBER Working Paper No. w15085, Available at SSRN: https://ssrn.com/abstract=1422964

Amanda Kowalski (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

Ann Arbor, MI
United States

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