Journal
JOURNAL OF PUBLIC ECONOMICS
Volume 146, Issue -, Pages 27-40Publisher
ELSEVIER SCIENCE SA
DOI: 10.1016/j.jpubeco.2016.11.011
Keywords
Bunching; Medicare; Health insurance; Health care
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Funding
- NIA [R01 AG032449]
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A large literature in empirical public finance relies on bunching to identify a behavioral response to non-linear incentives and to translate this response into an economic object to be used counterfactually. We conduct this type of analysis in the context of prescription drug insurance for the elderly in Medicare Part D, where a kink in the individual's budget set generates substantial bunching in annual drug expenditure around the famous donut bile. We show that different alternative economic models can match the basic bunching pattern, but have very different quantitative implications for the counterfactual spending response to alternative insurance contracts. These findings illustrate the importance of modeling choices in mapping a compelling reduced form pattern into an economic object of interest. (C) 2016 Elsevier B.V. All rights reserved.
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