Applied Health Economics, 2 edition

Book Preface

Large-scale survey datasets, in particular complex survey designs such as panel data and surveys linked to administrative data, provide a rich source of information for health economists. Panel data offer the scope to control for individual heterogeneity and to model the dynamics of individual behaviour. The detailed information on individual morbidity characteristics and use of health care services contained in administrative data allows the analyst to model observed hetero – geneity. However, the measures of outcome used in health economics do not always lend themselves to straight forward analysis and are often qualitative or categorical or display non-symmetrical and heteroskedastic distributions. These features of outcomes create challenges for estimating econometric models. The dramatic growth in computing power over recent years has been accompanied by the development of methods that help to overcome these challenges. The purpose of this book is to provide a practical guide to the skills necessary to put the required methods into practice.

This book highlights practical applications of econometric methods, illustrated using data on health from the British Health and Lifestyle Survey (HALS), the British Household Panel Survey (BHPS), the European Community Household Panel (ECHP), the US Medical Expenditure Panel Survey (MEPS) and the Survey of Health, Ageing and Retirement in Europe (SHARE). Throughout the book, there is a strong emphasis on applied work, illustrating the use of relevant computer software with code provided for Stata version 12 (www.stata.com). Familiarity with the basic syntax and structure of Stata is assumed. The Stata code and extracts from the statistical output are embedded directly in the main text (using the font Courier New) and explained as we go along, for example:

use “c:statadatabhps.dta” , clear

The corresponding Stata output appears alongside in a smaller font. The code presented in this book can be downloaded from the web pages of the Health, Econometrics and Data Group (HEDG): www.york.ac.uk/res/herc/research/hedg/.

We do not attempt to provide a review of the extensive health economics literature that makes use of econometric methods (for surveys of the literature see Jones, 2000, 2009). Instead, the book is built around empirical case studies, rather than general theory, and the emphasis is on learning by example. We present a detailed dissection of methods and results of some recent research papers written by the authors and our colleagues. Relevant methods are presented alongside the Stata code that can be used to implement them and the empirical results are discussed as we go along. To our knowledge, no comparable text exists. There are health economics texts and there are econometrics texts but these tend to focus on theory rather than application and tend not to bring the two disciplines together for the benefit of applied economists. The emphasis is on hands-on empirical analysis: the area that econometric texts tend to neglect. The closest in spirit is Angus Deaton’s (1997) excellent book on the analysis of household surveys, but that emphasises issues in the economics of development, poverty and welfare rather than health. A general knowledge of microeconometric methods is assumed. For more details, readers canrefer to texts such as Baltagi (2005), Cameron and Trivedi (2005), Greene (2003) and Wooldridge (2002b). Cameron and Trivedi (2009) provide a comprehensive source for the use of microeconometrics based on Stata and we have adopted one of their datasets in the analysis presented in Chapters 3 and 12.

As the book is built around case studies, and these reflect the particular interests of the authors, we do not claim to cover the full diversity of topics within applied health economics. However, we hope that these examples provide guidance and inspiration for those working on other topics within the field who want to make use of econometric methods. The book is primarily aimed at advanced under – graduates and postgraduates in health economics, along with health economics researchers in academic, government and private sector organisations who want to learn more about empirical research methods. In addition, the book may be used by other applied economists, in areas such as labour and environmental economics, and by health and social statisticians.

The second edition has been revised and updated throughout and two new chapters, on the description and modelling of individual health care costs, have been added.