A SEMIPARAMETRIC DISCRETE CHOICE MODEL: AN APPLICATION TO HOSPITAL MERGERS

We propose a computationally simple semiparametric discrete choice estimator to model rich consumer heterogeneity. We assume groups of observably similar consumers have similar preferences, but allow preferences to vary freely across these groups. Model flexibility is easily adjusted by setting a si...

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Bibliographic Details
Published inEconomic inquiry Vol. 55; no. 4; pp. 1919 - 1944
Main Authors Raval, Devesh, Rosenbaum, Ted, Tenn, Steven A.
Format Journal Article
LanguageEnglish
Published Boston, USA Wiley Periodicals, Inc 01.10.2017
Blackwell Publishers Ltd
Western Economic Association
Subjects
Acquisitions & mergers
Acquisitions and mergers
Analysis
Consumer preferences
Consumers
Decision making models
Discrete choice
Econometrics
Economic models
Flexibility
Hospitals
Mergers
Mergers, acquisitions and divestments
Monte Carlo simulation
Neighborhoods
United States
Validity
Welfare
United States
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Summary:We propose a computationally simple semiparametric discrete choice estimator to model rich consumer heterogeneity. We assume groups of observably similar consumers have similar preferences, but allow preferences to vary freely across these groups. Model flexibility is easily adjusted by setting a single tuning parameter; we suggest a cross‐validation method to do so. We analyze the model's properties in the context of hospital mergers, both analytically and via a Monte Carlo analysis. The model performs well for policy relevant substitution and welfare measures, even if misspecified, when the tuning parameter is set within the neighborhood of the value chosen by cross validation. (JEL C14, D12, I11, L41)
ISSN:0095-2583
1465-7295
DOI:10.1111/ecin.12454