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Parametric modelling of cost data: some simulation evidence

  • Andrew Briggs

    (University of Oxford, UK)

  • Richard Nixon

    (MRC Biostatistics Unit, Cambridge, UK)

  • Simon Dixon

    (University of Sheffield, UK)

  • Simon Thompson

    (MRC Biostatistics Unit, Cambridge, UK)

Registered author(s):

    Recently, commentators have suggested that the distributional form of cost data should be explicitly modelled to gain efficiency in estimating the population mean. We perform a series of simulation experiments to evaluate the usual sample mean and the mean estimator of a lognormal distribution, in the context of both theoretical distributions and three large empirical datasets. The sample mean is always unbiased, but is somewhat less efficient when the population distribution is truly lognormal. However the lognormal estimator can perform appallingly when the true distribution is not lognormal. In practical situations, where the true distribution is unknown, the sample mean generally remains the estimator of choice, especially when limited sample size prohibits detailed modelling of the cost data distribution. Copyright © 2005 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/hec.941
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    Article provided by John Wiley & Sons, Ltd. in its journal Health Economics.

    Volume (Year): 14 (2005)
    Issue (Month): 4 ()
    Pages: 421-428

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    Handle: RePEc:wly:hlthec:v:14:y:2005:i:4:p:421-428
    Contact details of provider: Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/5749

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    1. Duan, Naihua, et al, 1983. "A Comparison of Alternative Models for the Demand for Medical Care," Journal of Business & Economic Statistics, American Statistical Association, vol. 1(2), pages 115-26, April.
    2. Mullahy, John, 1998. "Much ado about two: reconsidering retransformation and the two-part model in health econometrics," Journal of Health Economics, Elsevier, vol. 17(3), pages 247-281, June.
    3. Willard G. Manning & John Mullahy, 1999. "Estimating Log Models: To Transform or Not to Transform?," NBER Technical Working Papers 0246, National Bureau of Economic Research, Inc.
    4. Partha Deb & James F. Burgess, Jr., 2003. "A Quasi-experimental Comparison of Econometric Models for Health Care Expenditures," Economics Working Paper Archive at Hunter College 212, Hunter College Department of Economics.
    5. Manning, Willard G, et al, 1987. "Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment," American Economic Review, American Economic Association, vol. 77(3), pages 251-77, June.
    6. Zhou, Xiao-Hua & Tu, Wanzhu, 2000. "Interval estimation for the ratio in means of log-normally distributed medical costs with zero values," Computational Statistics & Data Analysis, Elsevier, vol. 35(2), pages 201-210, December.
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