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

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

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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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
Date of revision:
Handle: RePEc:nbr:nberwo:17643
Note: HC IO
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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  1. Urquiola, Miguel & Verhoogen, Eric, 2007. "Class Size and Sorting in Market Equilibrium: Theory and Evidence," IZA Discussion Papers 2963, Institute for the Study of Labor (IZA).
  2. Guido Imbens & Thomas Lemieux, 2007. "Regression Discontinuity Designs: A Guide to Practice," NBER Working Papers 13039, National Bureau of Economic Research, Inc.
  3. 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.
  4. 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.
  5. Donald, Stephen G. & Paarsch, Harry J., 1996. "Identification, Estimation, and Testing in Parametric Empirical Models of Auctions within the Independent Private Values Paradigm," Econometric Theory, Cambridge University Press, vol. 12(03), pages 517-567, August.
  6. Dranove, David & Wehner, Paul, 1994. "Physician-induced demand for childbirths," Journal of Health Economics, Elsevier, vol. 13(1), pages 61-73, March.
  7. Jonathan Gruber & Maria Owings, 1996. "Physician Financial Incentives and Cesarean Section Delivery," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 99-123, Spring.
  8. Martin Gaynor & Paul Gertler, 1995. "Moral Hazard and Risk Spreading in Partnerships," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 591-613, Winter.
  9. Hodgkin, Dominic & McGuire, Thomas G., 1994. "Payment levels and hospital response to prospective payment," Journal of Health Economics, Elsevier, vol. 13(1), pages 1-29, March.
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