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Estimating Asymmetric Information Effects in Health Care Accounting for the Transactions Costs

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  • Zheng, Yan
  • Vukina, Tomislav
  • Zheng, Xiaoyong

Abstract

We use a structural approach to separately estimate moral hazard and adverse selection effects in health care utilization using hospital invoices data. Our model explicitly accounts for the heterogeneity in the transactions costs associated with hospital visits which increase the individuals' total cost of health care and dampen the moral hazard effect. A measure of moral hazard is derived as the difference between the observed and the counterfactual health care consumption. In the population of patients with non life-threatening diagnoses, our results indicate statistically significant and economically meaningful moral hazard. We also test for the presence of adverse selection by investigating whether patients with different health status sort themselves into different health insurance plans. Adverse selection is confirmed in the data because patients with estimated worse health tend to buy the insurance coverage and patients with estimated better health choose not to buy the insurance coverage.

Suggested Citation

  • Zheng, Yan & Vukina, Tomislav & Zheng, Xiaoyong, 2016. "Estimating Asymmetric Information Effects in Health Care Accounting for the Transactions Costs," ARE Working Papers 262941, North Carolina State University, Department of Agricultural and Resource Economics.
  • Handle: RePEc:ags:ncarwp:262941
    DOI: 10.22004/ag.econ.262941
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    References listed on IDEAS

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    1. Liran Einav & Amy Finkelstein & Stephen P. Ryan & Paul Schrimpf & Mark R. Cullen, 2013. "Selection on Moral Hazard in Health Insurance," American Economic Review, American Economic Association, vol. 103(1), pages 178-219, February.
    2. 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 251-277, June.
    3. Gardiol, Lucien & Geoffard, Pierre-Yves & Grandchamp, Chantal, 2005. "Separating Selection and Incentive Effects in Health Insurance," CEPR Discussion Papers 5380, C.E.P.R. Discussion Papers.
    4. Hanming Fang & Michael P. Keane & Dan Silverman, 2008. "Sources of Advantageous Selection: Evidence from the Medigap Insurance Market," Journal of Political Economy, University of Chicago Press, vol. 116(2), pages 303-350, April.
    5. Vera-Hernandez, Marcos, 2003. "Structural Estimation of a Principal-Agent Model: Moral Hazard in Medical Insurance," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 670-693, Winter.
    6. A. C. Cameron & P. K. Trivedi & Frank Milne & J. Piggott, 1988. "A Microeconometric Model of the Demand for Health Care and Health Insurance in Australia," Review of Economic Studies, Oxford University Press, vol. 55(1), pages 85-106.
    7. Xiangping Liu & Danijel Nestic & Tomislav Vukina, 2012. "Estimating Adverse Selection And Moral Hazard Effects With Hospital Invoices Data In A Government‐Controlled Healthcare System," Health Economics, John Wiley & Sons, Ltd., vol. 21(8), pages 883-901, August.
    8. Patrick Bajari & Christina Dalton & Han Hong & Ahmed Khwaja, 2014. "Moral hazard, adverse selection, and health expenditures: A semiparametric analysis," RAND Journal of Economics, RAND Corporation, vol. 45(4), pages 747-763, December.
    9. Pau Olivella & Marcos Vera‐Hernández, 2013. "Testing for Asymmetric Information in Private Health Insurance-super-," Economic Journal, Royal Economic Society, vol. 123(567), pages 96-130, March.
    10. Cardon, James H & Hendel, Igal, 2001. "Asymmetric Information in Health Insurance: Evidence from the National Medical Expenditure Survey," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 408-427, Autumn.
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    Keywords

    Health Economics and Policy;

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