Censored Quantile Instrumental Variable Estimates of the Price Elasticity of Expenditure on Medical Care
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.
I am grateful to Amy Finkelstein, Jon Gruber, and Jerry Hausman for their guidance. I would like to thank the following individuals for thoughtful comments: Michael Anderson, Joshua Angrist, David Autor, John Beshears, Soren Blomquist, Tonja Bowen-Bishop, David Card, Amitabh Chandra, David Cutler, Ian Dew-Becker, Deepa Dhume, Peter Diamond, Joseph Doyle, Esther Duflo, Jesse Edgerton, Matthew Eichner, Brigham Frandsen, John Friedman, Michael Greenstone, Raymond Guiteras, Matthew Harding, Naomi Hausman, Panle Jia, Lisa Kahn, Jonathan Kolstad, Whitney Newey, Joseph Newhouse, Douglas Norton, Christopher Nosko, Matthew Notowidigdo, James Poterba, David Powell, Andrew Samwick, David Seif, Hui Shan, Mark Showalter, Erin Strumpf, and Heidi Williams. Seminar participants at Chicago Booth, Cornell, Duke, Kellogg, MIT, Notre Dame, RAND, Stanford SIEPR, Temple Fox, Texas A&M, Wharton, Wisconsin, Yale, and Yale SOM provided helpful feedback. I gratefully acknowledge National Institute on Aging, Grant Number T32-AG00186. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Amanda Kowalski, 2016. "Censored Quantile Instrumental Variable Estimates of the Price Elasticity of Expenditure on Medical Care," Journal of Business & Economic Statistics, vol 34(1), pages 107-117. citation courtesy of