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Evaluating consumers’ choices of Medicare Part D plans: A study in behavioral welfare economics

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  • Keane, Michael
  • Ketcham, Jonathan
  • Kuminoff, Nicolai
  • Neal, Timothy
Abstract
We propose new methods to model behavior and conduct welfare analysis in complex environments where some choices are unlikely to reveal preferences. We develop a mixture-of-experts model that incorporates heterogeneity in consumers’ preferences and in their choice processes. We also develop a method to decompose logit errors into latent preferences versus optimization errors. Applying these methods to Medicare beneficiaries’ prescription drug insurance choices suggests that: (1) average welfare losses from suboptimal choices are small, (2) beneficiaries with dementia and depression have larger losses, and (3) policies that simplify choice sets offer small average benefits, helping some people but harming others.

Suggested Citation

  • Keane, Michael & Ketcham, Jonathan & Kuminoff, Nicolai & Neal, Timothy, 2021. "Evaluating consumers’ choices of Medicare Part D plans: A study in behavioral welfare economics," Journal of Econometrics, Elsevier, vol. 222(1), pages 107-140.
    • Handle: RePEc:eee:econom:v:222:y:2021:i:1:p:107-140
    DOI: 10.1016/j.jeconom.2020.07.029
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    1. Shuo Zhang & Tat Y. Chan & Xueming Luo & Xiaoyi Wang, 2022. "Time-Inconsistent Preferences and Strategic Self-Control in Digital Content Consumption," Marketing Science, INFORMS, vol. 41(3), pages 616-636, May.

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    More about this item

    Keywords

    Random utility model; Mixture of experts; Mixed logit; Market mapping; Hedonic utility; Decision utility; Medicare; Health insurance; Behavioral economics; Welfare;
    All these keywords.

    JEL classification:

    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • D60 - Microeconomics - - Welfare Economics - - - General
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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