Estimating price sensitivity of economic agents using discontinuity in nonlinear contracts

Patrick Bajari, Han Hong, Minjung Park, Robert Town

Research output: Contribution to journalArticlepeer-review

5 Scopus citations


This paper proposes a method to estimate price sensitivity of economic agents exploiting discontinuity in nonlinear contracts. As an application, we study contracts between a managed care organization and hospitals for organ transplants. Exploiting donut holes in the reimbursement contracts, we show that the impact of the reimbursement rate on hospitals' provision of health care services varies significantly across patients with different levels of illness severity. Our methodology is applicable to important classes of models such as consumer choice under nonlinear pricing and contracting with nonlinear incentives.

Original languageEnglish
Pages (from-to)397-433
Number of pages37
JournalQuantitative Economics
Issue number2
StatePublished - Jul 2017

Bibliographical note

Funding Information:
We are grateful to the editor and anonymous reviewers for their insightful comments and constructive suggestions. We also thank participants at the Industrial Organization of Health Care Conference at HEC Montreal and the Cowles Structural Microeconomics Summer Conference for helpful comments. We gratefully acknowledge the support provided by SIEPR and NSF Research Grants SES 1164589, SES 1325805 and SES 1459975. All remaining errors are our own.

Publisher Copyright:
Copyright © 2017 The Authors.


  • health care
  • heterogeneity in price sensitivity
  • Nonlinear contracts


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