Unconditional Demand for Curative Health Inputs

Does Selection on Health Status Matter in the Long Run?

by William Dow

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Healthy people are routinely ignored when analyzing curative health inputs. This practice overlooks people's long-term ability to affect their chances of falling sick, and may have perverse effects on welfare analyses. A dynamic model implies that input demand estimates conditioned on current illness can only be interpreted as short-run effects, in contrast to the long-run nature of unconditional estimates. In addition, conditional estimates may be biased from both sample-selection, and self-reporting of health status. By jointly modeling discrete choices for health inputs and health outcomes, a test for selection bias is derived using the multinomial probit. In data from Cote d'Ivoire, it is found that the usual short-run demand estimates do not suffer from selection bias. However, these conditional estimates differ from the easily estimated long-run unconditional effects, which are often the more relevant policy parameters.

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