Seminar No. 233

Title: Medical Testing as Optimal Information Acquisition

Speaker: Kyeongbae Kim, University of Chicago

Time:  August 14, 2020 10:00-11:30

Venue: Online

About the speaker:

Dr. Kim graduated University of Chicago with PhD in Economics in 2020. His research interests include empirical industrial organization, health economics and econometrics. Professor Bonhomme was one of his advisors. He is now a fellow at Korea Development Institute.

Abstract:

This paper formulates a model of optimal information acquisition, by developing a dynamic structural model of observation and adjustment costs. I then apply the empirical framework to medical testing in which a provider must balance the competing goals of making informed treatment decisions and saving testing costs for a diabetic patient's health. The novel feature of the model is that the state, a patient's blood sugar level, is not observed by a provider. If she chooses not to pay an observation cost for medical testing, the true state remains unobserved and the following treatment adjustments may be inaccurate. I combine the dynamic structural model with confidential administrative data on patient health from universal health screening and information acquisition behavior. I find that the higher cost of blood sugar testing leads to blood sugar levels that are more dispersed over time through ill-informed prescription adjustments. Counterfactual exercises show that performing an A1C test, the state-of-art method of blood sugar testing, every six months is the most cost-effective diabetes management considering its monetary costs and health benefits, with an additional cost of $11,018.66 for one extra quality-adjusted life-year.