Ruhr Economic Papers

Ruhr Economic Papers #73

Do Red Herrings Swim in Circles? – Controlling for the Endogeneity of Time to Death

by Stefan Felder, Andreas Werblow and Peter Zweifel

Universität Duisburg-Essen, 10/2008, 17 S./p., 8 Euro, ISBN 978-3-86788-077-0

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Abstract

Studies on the effect of ageing on health care expenditures (HCE) have revealed the importance of controlling for time-to-death (TTD). These studies, however, are subject to possible endogeneity if HCE influences remaining life expectancy. This paper introduces a ten year observational period on monthly HCE, socioeconomic characteristics, and survivor status to first predict TTD and then uses predicted values of TTD as an instrument in the regression for HCE. While exogeneity of TTD has to be rejected, core results concerning the role of TTD rather than age as a determinant of HCE (the "red herring" hypothesis) are confirmed.

JEL-Classification: I10, D12

Keywords: Health care expenditure; proximity to death; ageing; "red herring" hypothesis

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