Estimating Dynamic Discrete Choice Models of Product Differentiation: An Application to Medicare Part D with Switching Costs
Year: 2012
Type: report
Abstract: This paper proposes an algorithm to estimate dynamic discrete choice models using aggregate market share data. The algorithm achieves a computational advantage by decomposing the complicated mapping between market shares and utility ows into two simpler ones. The
rst maps observed market shares to mean choice speci
c values, and the second then maps to mean utility ows. In the application, we estimate switching costs in the Medicare Part D market. Our results indicate a large switching cost of around $1,700, which implies an average welfare loss of $480 as enrollees choose to remain in sub-optimal plans to avoid switching costs. Department of Economics, Clemson University; [email protected] yCorresponding author. School of Economics, Singapore Management University; [email protected]
Authors: Daniel P. Miller, Jungwon Yeo
Institution: Singapore Management University
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2133234601