jhe-theory-model

• SKILL.mdcore · 8,517 bytes

# Theory and Model Craft (jhe-theory-model)

## When to trigger

- A reduced-form health-policy estimate needs a model to be interpreted as welfare, demand, or a structural parameter
- An insurance/selection paper needs the demand-and-selection model to map data to risk preferences or adverse selection
- A provider paper needs a payment-response model to predict how DRG/P4P/capitation reshapes behavior
- A counterfactual (a coverage expansion, a price change, an optimal cost-sharing rule) requires a model to extrapolate beyond the estimated variation

## How JHE uses models

At JHE a model rarely stands alone; it **earns the right to interpret an estimate or run a counterfactual**. The bar is that the model be **tight enough to discipline the data and realistic enough to match the institution**. JHE's house demand-and-selection and provider-incentive models are the lingua franca — use them rather than reinventing. The decisive questions: does the model identify the object you claim (an elasticity, a selection parameter, a welfare quantity)? Are its parameters **policy-invariant** for the counterfactual you run (the Lucas critique bites hard for coverage and payment reforms)? Does it respect institutional facts — risk adjustment, network rules, mandatory-coverage floors — that change the equilibrium?

## Model archetypes and what each must deliver