IDEAS home Printed from https://ideas.repec.org/a/bla/jindec/v69y2021i2p338-368.html
   My bibliography  Save this article

Why is Distance Important for Hospital Choice? Separating Home Bias From Transport Costs

Author

Listed:
  • Devesh Raval
  • Ted Rosenbaum

Abstract

In retail and health care markets, demand declines with geographic distance to the establishment, but either transport costs or preferences correlated with distance (‘home bias’) could cause this decline. Using hospital choices for childbirth, we find that, after controlling for home bias using fixed effects, estimates of the transport cost disutility fall by 40% relative to a standard logit model. We show that referrals are a likely source of home bias. We then show that home bias matters for policy questions including a simulated hospital merger, network adequacy concerns, and the tradeoff between distance and quality.

Suggested Citation

  • Devesh Raval & Ted Rosenbaum, 2021. "Why is Distance Important for Hospital Choice? Separating Home Bias From Transport Costs," Journal of Industrial Economics, Wiley Blackwell, vol. 69(2), pages 338-368, June.
  • Handle: RePEc:bla:jindec:v:69:y:2021:i:2:p:338-368
    DOI: 10.1111/joie.12258
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/joie.12258
    Download Restriction: no

    File URL: https://libkey.io/10.1111/joie.12258?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Erik Hanushek & Stephen Machin & Ludger Woessmann (ed.), 2011. "Handbook of the Economics of Education," Handbook of the Economics of Education, Elsevier, edition 1, volume 4, number 4, June.
    2. Sacerdote, Bruce, 2011. "Peer Effects in Education: How Might They Work, How Big Are They and How Much Do We Know Thus Far?," Handbook of the Economics of Education, in: Erik Hanushek & Stephen Machin & Ludger Woessmann (ed.), Handbook of the Economics of Education, edition 1, volume 3, chapter 4, pages 249-277, Elsevier.
    3. Head, Keith & Mayer, Thierry, 2014. "Gravity Equations: Workhorse,Toolkit, and Cookbook," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 131-195, Elsevier.
    4. Gautam Gowrisankaran & Aviv Nevo & Robert Town, 2015. "Mergers When Prices Are Negotiated: Evidence from the Hospital Industry," American Economic Review, American Economic Association, vol. 105(1), pages 172-203, January.
    5. Edward L. Glaeser & Bruce I. Sacerdote & Jose A. Scheinkman, 2003. "The Social Multiplier," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 345-353, 04/05.
    6. Thomas Chaney, 2018. "The Gravity Equation in International Trade: An Explanation," Journal of Political Economy, University of Chicago Press, vol. 126(1), pages 150-177.
    7. Ali Hortaçsu & F. Asís Martínez-Jerez & Jason Douglas, 2009. "The Geography of Trade in Online Transactions: Evidence from eBay and MercadoLibre," American Economic Journal: Microeconomics, American Economic Association, vol. 1(1), pages 53-74, February.
    8. Holger C. Wolf, 2000. "Intranational Home Bias In Trade," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 555-563, November.
    9. Katherine Ho, 2006. "The welfare effects of restricted hospital choice in the US medical care market," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(7), pages 1039-1079.
    10. repec:hal:spmain:info:hdl:2441/3pucspchqi8kcpk743av62v2va is not listed on IDEAS
    11. Beckert, Walter, 2018. "Choice in the presence of experts: The role of general practitioners in patients’ hospital choice," Journal of Health Economics, Elsevier, vol. 60(C), pages 98-117.
    12. Mark Shepard, 2016. "Hospital Network Competition and Adverse Selection: Evidence from the Massachusetts Health Insurance Exchange," NBER Working Papers 22600, National Bureau of Economic Research, Inc.
    13. James E. Anderson, 2011. "The Gravity Model," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 133-160, September.
    14. Michael Chernew & Zack Cooper & Eugene Larsen-Hallock & Fiona Scott Morton, 2018. "Are Health Care Services Shoppable? Evidence from the Consumption of Lower-Limb MRI Scans," NBER Working Papers 24869, National Bureau of Economic Research, Inc.
    15. Burns, Lawton R. & Wholey, Douglas R., 1992. "The impact of physician characteristics in conditional choice models for hospital care," Journal of Health Economics, Elsevier, vol. 11(1), pages 43-62, May.
    16. John A. Romley & Dana P. Goldman, 2011. "How Costly is Hospital Quality? A Revealed‐Preference Approach," Journal of Industrial Economics, Wiley Blackwell, vol. 59(4), pages 578-608, December.
    17. Devesh Raval & Ted Rosenbaum, 2018. "Why Do Previous Choices Matter for Hospital Demand? Decomposing Switching Costs from Unobserved Preferences," The Review of Economics and Statistics, MIT Press, vol. 100(5), pages 906-915, December.
    18. Thomas J. Holmes, 2011. "The Diffusion of Wal‐Mart and Economies of Density," Econometrica, Econometric Society, vol. 79(1), pages 253-302, January.
    19. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412, National Bureau of Economic Research, Inc.
    20. Raval, Devesh & Rosenbaum, Ted & Wilson, Nathan E., 2021. "How do machine learning algorithms perform in predicting hospital choices? evidence from changing environments," Journal of Health Economics, Elsevier, vol. 78(C).
    21. Bo E. Honoré & Ekaterini Kyriazidou, 2000. "Panel Data Discrete Choice Models with Lagged Dependent Variables," Econometrica, Econometric Society, vol. 68(4), pages 839-874, July.
    22. Schiller, Preston L. & Levin, Jeffrey S., 1988. "Is there a religious factor in health care utilization?: A review," Social Science & Medicine, Elsevier, vol. 27(12), pages 1369-1379, January.
    23. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
    24. Raphael Thomadsen, 2005. "The Effect of Ownership Structure on Prices in Geographically Differentiated Industries," RAND Journal of Economics, The RAND Corporation, vol. 36(4), pages 908-929, Winter.
    25. Jean-Francois Houde, 2012. "Spatial Differentiation and Vertical Mergers in Retail Markets for Gasoline," American Economic Review, American Economic Association, vol. 102(5), pages 2147-2182, August.
    26. Capps, Cory & Dranove, David & Lindrooth, Richard C., 2010. "Hospital closure and economic efficiency," Journal of Health Economics, Elsevier, vol. 29(1), pages 87-109, January.
    27. Kate Ho & Robin S. Lee, 2017. "Insurer Competition in Health Care Markets," Econometrica, Econometric Society, vol. 85, pages 379-417, March.
    28. Gary Chamberlain, 1980. "Analysis of Covariance with Qualitative Data," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(1), pages 225-238.
    29. Kate Ho & Ariel Pakes, 2014. "Physician Payment Reform and Hospital Referrals," American Economic Review, American Economic Association, vol. 104(5), pages 200-205, May.
    30. repec:hal:wpspec:info:hdl:2441/dambferfb7dfprc9m01g1j1k2 is not listed on IDEAS
    31. Baker, Laurence C. & Bundorf, M. Kate & Kessler, Daniel P., 2016. "The effect of hospital/physician integration on hospital choice," Journal of Health Economics, Elsevier, vol. 50(C), pages 1-8.
    32. Grogger, Jeffrey & Hanson, Gordon H., 2011. "Income maximization and the selection and sorting of international migrants," Journal of Development Economics, Elsevier, vol. 95(1), pages 42-57, May.
    33. Bergstrand, Jeffrey H, 1985. "The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 474-481, August.
    34. Tay, Abigail, 2003. "Assessing Competition in Hospital Care Markets: The Importance of Accounting for Quality Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 786-814, Winter.
    35. repec:hal:spmain:info:hdl:2441/dambferfb7dfprc9m01g1j1k2 is not listed on IDEAS
    36. Capps, Cory & Dranove, David & Satterthwaite, Mark, 2003. "Competition and Market Power in Option Demand Markets," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 737-763, Winter.
    37. Kei-Mu Yi, 2010. "Can Multistage Production Explain the Home Bias in Trade?," American Economic Review, American Economic Association, vol. 100(1), pages 364-393, March.
    38. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-623, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Milcent, Carine, 2023. "The sorting effect in healthcare access: Those left behind," Economics & Human Biology, Elsevier, vol. 51(C).
    2. Mian Dai & Qiang Gong & Shiyu Tan, 2021. "Home bias and market power: Evidence from the Chinese automobile industry," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(3), pages 986-1017, November.
    3. Devesh Raval & Ted Rosenbaum & Nathan E. Wilson, 2022. "Using disaster‐induced closures to evaluate discrete choice models of hospital demand," RAND Journal of Economics, RAND Corporation, vol. 53(3), pages 561-589, September.
    4. Petek, Nathan, 2022. "The marginal benefit of hospitals: Evidence from the effect of entry and exit on utilization and mortality rates," Journal of Health Economics, Elsevier, vol. 86(C).
    5. Souillard, Baptiste, 2024. "Unilateral effects of mergers with price regulation and quality competition," Economics Letters, Elsevier, vol. 242(C).
    6. Abigail Ferguson & Nellie Lew & Michael Lipsitz & Devesh Raval, 2023. "Economics at the FTC: Spatial Demand, Veterinary Hospital Mergers, Rulemaking, and Noncompete Agreements," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 63(4), pages 435-465, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Devesh Raval & Ted Rosenbaum & Nathan E. Wilson, 2022. "Using disaster‐induced closures to evaluate discrete choice models of hospital demand," RAND Journal of Economics, RAND Corporation, vol. 53(3), pages 561-589, September.
    2. Martin Gaynor & Kate Ho & Robert J. Town, 2015. "The Industrial Organization of Health-Care Markets," Journal of Economic Literature, American Economic Association, vol. 53(2), pages 235-284, June.
    3. David Bounie & Youssouf Camara & John W. Galbraith, 2021. "Consumer Mobility, Online and On-site Commerce and the Geographic Concentration of Economic Activity: Evidence from 20 Billion Transactions," CIRANO Working Papers 2021s-17, CIRANO.
    4. Agnosteva, Delina E. & Anderson, James E. & Yotov, Yoto V., 2019. "Intra-national trade costs: Assaying regional frictions," European Economic Review, Elsevier, vol. 112(C), pages 32-50.
    5. Chen, Qiulin & Xu, Duo & Fu, Hongqiao & Yip, Winnie, 2022. "Distance effects and home bias in patient choice on the Internet: Evidence from an online healthcare platform in China," China Economic Review, Elsevier, vol. 72(C).
    6. Bailey, Michael & Gupta, Abhinav & Hillenbrand, Sebastian & Kuchler, Theresa & Richmond, Robert & Stroebel, Johannes, 2021. "International trade and social connectedness," Journal of International Economics, Elsevier, vol. 129(C).
    7. Gaynor, Martin & Town, Robert J., 2011. "Competition in Health Care Markets," Handbook of Health Economics, in: Mark V. Pauly & Thomas G. Mcguire & Pedro P. Barros (ed.), Handbook of Health Economics, volume 2, chapter 0, pages 499-637, Elsevier.
    8. Abigail Ferguson & Nellie Lew & Michael Lipsitz & Devesh Raval, 2023. "Economics at the FTC: Spatial Demand, Veterinary Hospital Mergers, Rulemaking, and Noncompete Agreements," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 63(4), pages 435-465, December.
    9. David Bounie & Youssouf Camara & John Galbraith, 2020. "Online Commerce, Inter-Regional Retail Trade, and the Evolution of Gravity Effects: Evidence from 20 Billion Transactions," Working Papers hal-02864695, HAL.
    10. Markus Brueckner & Ngo Van Long & Joaquin L. Vespignani, 2020. "Non-Gravity Trade," Globalization Institute Working Papers 388, Federal Reserve Bank of Dallas.
    11. Head, Keith & Mayer, Thierry, 2014. "Gravity Equations: Workhorse,Toolkit, and Cookbook," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 131-195, Elsevier.
    12. Cletus C. Coughlin & Dennis Novy, 2013. "Is the International Border Effect Larger than the Domestic Border Effect? Evidence from US Trade," CESifo Economic Studies, CESifo Group, vol. 59(2), pages 249-276, June.
    13. James E. Anderson, 2011. "The Gravity Model," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 133-160, September.
    14. Anderson, James E. & Yotov, Yoto V., 2020. "Short run gravity," Journal of International Economics, Elsevier, vol. 126(C).
    15. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
    16. Kate Ho & Ariel Pakes, 2014. "Hospital Choices, Hospital Prices, and Financial Incentives to Physicians," American Economic Review, American Economic Association, vol. 104(12), pages 3841-3884, December.
    17. Kristian Behrens & Giordano Mion & Yasusada Murata & Jens Südekum, 2014. "Trade, Wages, And Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(4), pages 1305-1348, November.
    18. Drake, Coleman, 2019. "What are consumers willing to pay for a broad network health plan?: Evidence from covered California," Journal of Health Economics, Elsevier, vol. 65(C), pages 63-77.
    19. Kate Ho & Robin S. Lee, 2019. "Equilibrium Provider Networks: Bargaining and Exclusion in Health Care Markets," American Economic Review, American Economic Association, vol. 109(2), pages 473-522, February.
    20. Felix L. Friedt & Wesley W. Wilson, 2020. "Trade, transport costs and trade imbalances: An empirical examination of international markets and backhauls," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(2), pages 592-636, May.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jindec:v:69:y:2021:i:2:p:338-368. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.