Measuring Quality Effects in Equilibrium
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.
We are grateful to Janet Currie, Kate Ho, and participants at the American Society of Health Economists Biennial Meeting, the Sixth Annual Conference on Healthcare Markets, Emory University, George Washington University, the International Industrial Organization Conference, the Southeastern Health Economics Study Group, and Princeton University. Ruoxin Zhang and Jie Li provided excellent research assistance. This research was supported by the National Heart, Lung, and Blood Institute (R01 HL119246). The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Seth Richards-Shubik & Mark S. Roberts & Julie M. Donohue, 2022. "Measuring Quality Effects in Equilibrium✰," Journal of Health Economics, . citation courtesy of