HealthLawProf Blog

Editor: Katharine Van Tassel
Case Western Reserve University School of Law

Monday, September 6, 2021

Unobserved Heterogeneity, State Dependence, and Health Plan Choices

Ariel Pakes (Harvard University), Jack R. Porter (University of Wisconsin), Mark Shepard (Harvard University), Sophie Calder-Wang (University of Pennsylvania), Unobserved Heterogeneity, State Dependence, and Health Plan Choices(Harv. Kennedy Sch., Working Paper No. RWP21-020, 2021):

We provide a new method to analyze discrete choice models with state dependence and individual-by-product fixed effects, and use it to analyze consumer choices in a policy-relevant environment (a subsidized health insurance exchange). Moment inequalities are used to infer state dependence from consumers’ switching choices in response to changes in product attributes. We infer much smaller switching costs on the health insurance exchange than is inferred from standard logit and/or random effects methods. A counterfactual policy evaluation illustrates that the policy implications of this difference can be substantive.

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