Much ado about two: reconsidering retransformation and the two-part model in health econometrics.
In health economics applications involving outcomes (y) and covariates (x), it is often the case that the central inferential problems of interest involve E[y/x] and its associated partial effects or elasticities. Many such outcomes have two fundamental statistical properties: y > or = 0; and the outcome y = 0 is observed with sufficient frequency that the zeros cannot be ignored econometrically. This paper (1) describes circumstances where the standard two-part model with homoskedastic retransformation will fail to provide consistent inferences about important policy parameters; and (2) demonstrates some alternative approaches that are likely to prove helpful in applications.
Mullahy
J
J
University of Wisconsin-Madison 53706, USA. jmullahy@facstaff.wisc.edu
D003627:Data Interpretation, Statistical; D006291:Health Policy / Q000191:economics; D006301:Health Services Needs and Demand / Q000191:economics / Q000706:statistics & numerical data; D006302:Health Services Research / Q000191:economics / Q000379:methods* / Q000592:standards; D006801:Humans; D008432:Mathematical Computing; D017059:Models, Econometric; D017063:Outcome Assessment, Health Care / Q000191:economics / Q000706:statistics & numerical data; D012107:Research Design / Q000592:standards