Measuring Quality Effects in Equilibrium

33 Pages Posted: 25 May 2021 Last revised: 20 Jul 2021

See all articles by Seth Richards-Shubik

Seth Richards-Shubik

Lehigh University - Department of Economics; National Bureau of Economic Research (NBER)

Mark S. Roberts

University of Pittsburgh

Julie Donohue

University of Pittsburgh - Graduate School of Public Health

Date Written: May 2021

Abstract

Unlike demand studies in other industries, models of provider demand in health care often must omit a price or any other factor that equilibrates the market. Estimates of the consumer response to quality may consequently be attenuated, if the limited capacity of individual providers prevents some consumers from obtaining higher quality. We propose a tractable method to address this problem by adding a congestion effect to standard discrete-choice models. We show analytically how this improves forecasts of the consumer response to quality. We then apply this method to the market for heart surgery, and find that the attenuation bias in estimated quality effects can be important empirically.

Suggested Citation

Richards-Shubik, Seth and Roberts, Mark S. and Donohue, Julie, Measuring Quality Effects in Equilibrium (May 2021). NBER Working Paper No. w28817, Available at SSRN: https://ssrn.com/abstract=3851820

Seth Richards-Shubik (Contact Author)

Lehigh University - Department of Economics ( email )

620 Taylor Street
Bethlehem, PA 18015
United States

HOME PAGE: http://www.lehigh.edu/~ser315

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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Mark S. Roberts

University of Pittsburgh ( email )

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Suite 200
Pittsburgh, PA 15213
United States

Julie Donohue

University of Pittsburgh - Graduate School of Public Health ( email )

Pittsburgh, PA 15260-0001
United States

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