Estimating demand elasticities using nonlinear pricing

Dalton, Christina Marsh

doi:10.1016/j.ijindorg.2014.08.007

Cited by 21 publications

(13 citation statements)

References 26 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Studying intertemporal substitution is important for at least two reasons. First, with the important exceptions of Einav et al (2015) and Cabral (2016), most of the literature on health care demand and the effect of insurance on spending has neglected intertemporal substitution, and estimated in a wide range of price elasticities, from as small as -0.2 to as large as -1.5 (for example, Manning et al (1987); Eichner (1998); Zweifel and Manning (2000); Cardon and Hendel (2001); Bajari et al (2014); Dalton (2014) and Kowalski (2015Kowalski ( , 2016))). Most papers assume that health care decisions are made statically on an annual basis, meaning that there is no scope for future prices to affect current demand.…”

Section: Introductionmentioning

confidence: 99%

Intertemporal substitution in health care demand: Evidence from the RAND Health Insurance Experiment

Lin

Sacks

2019

Journal of Public Economics

View full text Add to dashboard Cite

Conferences for helpful comments and feedback. We are grateful to the RAND investigators for providing publicly available, well documented replication data. Jordan Keener provided excellent research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

show abstract

Section: Introductionmentioning

confidence: 99%

Intertemporal substitution in health care demand: Evidence from the RAND Health Insurance Experiment

Lin

Sacks

2019

Journal of Public Economics

View full text Add to dashboard Cite

show abstract

“…Most of this literature has focused on characterizing the spending effect of a health insurance contract with respect to a given single price despite the highly non-linear nature of many observed contracts (and hence the difficulty in defining a single price induced by the non-linear budget set; see Aron-Dine, Einav, and Finkelstein 2013). Our paper is part of a recent flurry of attention to the non-linear nature of typical health insurance contracts (Vera-Hernandez 2003; Bajari et al 2011; Kowalski 2012; Dalton 2014). It complements our earlier work (Aron-Dine et al 2015) in which we tested – and rejected – the null hypothesis that individuals do not consider the dynamic incentives in non-linear health insurance contracts when making drug or medical purchase decisions.…”

Section: Introductionmentioning

confidence: 99%

“…Most of this literature focuses on consumers’ choice of plans (Heiss, McFadden, and Winter 2010; Abaluck and Gruber 2011; Kling et al 2012; Ketcham et al 2012; Heiss et al 2013; Polyakova 2014). However, some of it also examines the impact of Part D on drug purchases (Yin et al 2008; Duggan and Scott Morton 2010; Joyce, Zissimopoulos, and Goldman 2013), including the role of non-linear contracts (Abaluck, Gruber, and Swanson 2014; Dalton, Gowrisankaran, and Town 2014). …”

Section: Introductionmentioning

confidence: 99%

The Response of Drug Expenditure to Nonlinear Contract Design: Evidence from Medicare Part D *

Einav¹,

Finkelstein²,

Schrimpf³

2015

The Quarterly Journal of Economics

139

149

View full text Add to dashboard Cite

We study the demand response to non-linear price schedules using data on insurance contracts and prescription drug purchases in Medicare Part D. We exploit the kink in individuals’ budget set created by the famous “donut hole,” where insurance becomes discontinuously much less generous on the margin, to provide descriptive evidence of the drug purchase response to a price increase. We then specify and estimate a simple dynamic model of drug use that allows us to quantify the spending response along the entire non-linear budget set. We use the model for counterfactual analysis of the increase in spending from “filling” the donut hole, as will be required by 2020 under the Affordable Care Act. In our baseline model, which considers spending decisions within a single year, we estimate that “filling” the donut hole will increase annual drug spending by about $150, or about 8 percent. About one-quarter of this spending increase reflects “anticipatory” behavior, coming from beneficiaries whose spending prior to the policy change would leave them short of reaching the donut hole. We also present descriptive evidence of cross-year substitution of spending by individuals who reach the kink, which motivates a simple extension to our baseline model that allows – in a highly stylized way – for individuals to engage in such cross year substitution. Our estimates from this extension suggest that a large share of the $150 drug spending increase could be attributed to cross-year substitution, and the net increase could be as little as $45 per year.

show abstract

“…This point was emphasized in some of the early theoretical work on the impact of health insurance on health spending (Keeler, Newhouse, and Phelps, 1977; Ellis, 1986) but until recently has rarely been incorporated into empirical work. Several papers on the impact of health insurance on medical spending – Ellis (1986), Cardon and Hendel (2001), and more recently Kowalski (2012), Dalton (2014), and our own work (Einav et al, 2013) – explicitly account for the non-linear budget set, but do so under the (untested) assumption that individuals respond only to the future price of care. 2 …”

Section: Introductionmentioning

confidence: 99%

Moral Hazard in Health Insurance: Do Dynamic Incentives Matter?

Aron-Dine

Einav

Finkelstein

et al. 2015

Review of Economics and Statistics

View full text Add to dashboard Cite

Using data from employer-provided health insurance and Medicare Part D, we investigate whether healthcare utilization responds to the dynamic incentives created by the nonlinear nature of health insurance contracts. We exploit the fact that, because annual coverage usually resets every January, individuals who join a plan later in the year face the same initial (“spot”) price of healthcare but a higher expected end-of-year (“future”) price. We find a statistically significant response of initial utilization to the future price, rejecting the null that individuals respond only to the spot price. We discuss implications for analysis of moral hazard in health insurance.

show abstract

Estimating demand elasticities using nonlinear pricing

Cited by 21 publications

References 26 publications

Intertemporal substitution in health care demand: Evidence from the RAND Health Insurance Experiment

Intertemporal substitution in health care demand: Evidence from the RAND Health Insurance Experiment

The Response of Drug Expenditure to Nonlinear Contract Design: Evidence from Medicare Part D *

Moral Hazard in Health Insurance: Do Dynamic Incentives Matter?

Contact Info

Product

Resources

About