ESTIMATES OF THE DEMAND FOR MEDICAL-CARE UNDER DIFFERENT FUNCTIONAL FORMS

We estimate price and income elasticities from a linear, log-linear, a nd the almost ideal demand model (with and without an adjustment for s electivity bias) in an effort to show that special attention should be paid to the underlying assumptions of consumer behaviour when estimat ing a medical care demand model. The literature on medical care utiliz ation is extended by incorporating two major components of spending as separate demands in a system of medical care spending. We find that e stimates of elasticities vary depending on the functional form of the estimating equation, thus questioning the usefulness for policy purpos es of single estimates of elasticities.