Working Paper: NBER ID: w29025
Authors: Ariel Pakes; Jack R. Porter; Mark Shepard; Sophie Calderwang
Abstract: 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.
Keywords: health insurance; discrete choice models; state dependence; unobserved heterogeneity; consumer behavior
JEL Codes: C13; D12; I11; L60; M31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| switching costs in the health insurance exchange (G52) | estimated switching costs (L15) |
| price changes (P22) | switching behavior (D91) |
| switching behavior (D91) | switching costs (D23) |