Estimating incentive and selection effects in the medigap insurance market: An application with dirichlet process mixture model

Hu, Xuequn, Munkin, Murat K. and Trivedi, Pravin K. (2014) Estimating incentive and selection effects in the medigap insurance market: An application with dirichlet process mixture model. Journal of Applied Econometrics, 30 7: 1115-1143. doi:10.1002/jae.2403


Author Hu, Xuequn
Munkin, Murat K.
Trivedi, Pravin K.
Title Estimating incentive and selection effects in the medigap insurance market: An application with dirichlet process mixture model
Journal name Journal of Applied Econometrics   Check publisher's open access policy
ISSN 0883-7252
1099-1255
Publication date 2014-07-21
Year available 2014
Sub-type Article (original research)
DOI 10.1002/jae.2403
Open Access Status
Volume 30
Issue 7
Start page 1115
End page 1143
Total pages 29
Place of publication Chichester, West Sussex, United Kingdom
Publisher John Wiley & Sons
Collection year 2015
Language eng
Abstract This paper presents an empirical study of endogenous treatment effects in the presence of heterogeneous responses. We estimate the incentive and selection effects of having prescription drug coverage on total drug expenditures using a sample from the Medicare Current Beneficiary Survey (MCBS). A Dirichlet process mixture (DPM) model is used to model the heterogeneity in treatment effects. Rather than estimating a finite mixture model with a fixed number of components, we specify a DP prior on the parameters, thus allowing the data and prior knowledge to determine the number of components. Endogeneity is modeled by the covariance of the error terms of the selection and the outcome equations in a two-equation selection model. We find that there are strong incentive and advantageous selection effects, with the average treatment effect and the average treatment effect for the treated estimated at $1132 and $858, respectively. Substantial heterogeneity is found to exist in the selection effects, particularly for those having lower drug expenditures.
Q-Index Code C1
Q-Index Status Confirmed Code
Institutional Status UQ

Document type: Journal Article
Sub-type: Article (original research)
Collections: Official 2015 Collection
School of Economics Publications
 
Versions
Version Filter Type
Citation counts: TR Web of Science Citation Count  Cited 0 times in Thomson Reuters Web of Science Article
Scopus Citation Count Cited 0 times in Scopus Article
Google Scholar Search Google Scholar
Created: Tue, 07 Oct 2014, 14:44:25 EST by Alys Hohnen on behalf of School of Economics