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Regression Discontinuity Designs with an Endogenous Forcing Variable and an Application to Contracting in Health Care

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  • Patrick Bajari
  • Han Hong
  • Minjung Park
  • Robert Town
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    Abstract

    Regression discontinuity designs (RDDs) are a popular method to estimate treatment effects. However, RDDs may fail to yield consistent estimates if the forcing variable can be manipulated by the agent. In this paper, we examine one interesting set of economic models with such a feature. Specifically, we examine the case where there is a structural relationship between the forcing variable and the outcome variable because they are determined simultaneously. We propose a modi ed RDD estimator for such models and derive the conditions under which it is consistent. As an application of our method, we study contracts between a large managed care organization and leading hospitals for the provision of organ and tissue transplants. Exploiting "donut holes" in the reimbursement contracts we estimate how the total claims filed by the hospitals depend on the generosity of the reimbursement structure. Our results show that hospitals submit significantly larger bills when the reimbursement rate is higher, indicating informational asymmetries between the payer and hospitals in this market.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17643.

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    Date of creation: Dec 2011
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    Handle: RePEc:nbr:nberwo:17643

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    1. Gaynor, M. & Gertler, P., 1996. "Moral hazard and Risk Speading in Partnerships," Papers 96-09, RAND - Reprint Series.
    2. Martin Gaynor & James B. Rebitzer & Lowell J. Taylor, 2004. "Physician Incentives in Health Maintenance Organizations," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 915-931, August.
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    7. McCrary, Justin, 2008. "Manipulation of the running variable in the regression discontinuity design: A density test," Journal of Econometrics, Elsevier, vol. 142(2), pages 698-714, February.
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    Cited by:
    1. Sojourner, Aaron J. & Frandsen, Brigham R. & Town, Robert J. & Grabowski, David C. & Chen, Michelle M., 2014. "Impacts of Unionization on Quality and Productivity: Regression Discontinuity Evidence from Nursing Homes," IZA Discussion Papers 8240, Institute for the Study of Labor (IZA).
    2. Kate Ho & Ariel Pakes, 2013. "Hospital Choices, Hospital Prices and Financial Incentives to Physicians," NBER Working Papers 19333, National Bureau of Economic Research, Inc.

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