What does demand heterogeneity tell us about health care provider choice in rural China?

The objective of this paper is twofold: 1) to fill the gap in the health care literature with the estimation of the price and distance effects on health care provider choices by households in the presence of varying demand heterogeneity, 2) to contribute to estimation robustness by confronting the performance of the mixed multinomial logit (MMNL) and the multinomial logit (MNL). We built a database of two samples of patients surveyed within the same regions in rural China over a time interval of 18 years, and presumed varying demand heterogeneity due to income increase and people aging. We find that while the mean price and distance negative effects on patients choice were present in both time periods, their differences in heterogeneity, which were confirmed with the MMNL, could have crucial importance in avoiding erroneous policy making based merely on mean price and distance effects. We also find that while both the MNL and the MMNL are able to predict price and distance effects with low heterogeneity, only the MMNL appears able to detect the price effect when heterogeneity is high. This finding has policy implications and suggests using caution when interpreting estimation results with the MNL in cases of high heterogeneity.