Class 20: Instrumental Variables, Part II

Today we employ the IV estimator in the context of hospital pricing. We’ll examine whether hospitals that received HRRP penalties subsequently raised their prices, using baseline Medicare discharge volume as an instrument.

Objectives

• Understand and use an IV estimator in R
• Understand first-stage and reduced-form diagnostics
• Understand and describe the problem of weak instruments and how to test for weak instruments empirically

Activities

• Continue work with the Hospital Cost Report Information System (HCRIS) data
• Estimate the effect of HRRP penalties on hospital pricing using IV