Bunching at the Kink: Implications for Spending Responses to Health Insurance Contracts

Liran Einav, Amy Finkelstein and Paul Schrimpf

No 22369, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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 hole.” 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.

JEL-codes: D12 G22 (search for similar items in EconPapers)
Date: 2016-06
New Economics Papers: this item is included in nep-cta, nep-hea and nep-ias
Note: AG EH IO LS PE
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Published as Liran Einav & Amy Finkelstein & Paul Schrimpf, 2017. "Bunching at the kink: Implications for spending responses to health insurance contracts," Journal of Public Economics, vol 146, pages 27-40.
Published as Bunching at the Kink: Implications for Spending Responses to Health Insurance Contracts , Liran Einav, Amy Finkelstein, Paul Schrimpf. in Social Insurance Programs (Trans-Atlantic Public Economics Seminar, TAPES) , Gordon, Peichl, and Poterba. 2019

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Journal Article: Bunching at the kink: Implications for spending responses to health insurance contracts (2017)
Chapter: Bunching at the Kink: Implications for Spending Responses to Health Insurance Contracts (2016)
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