TY - JOUR AU - Einav, Liran AU - Finkelstein, Amy AU - Schrimpf, Paul TI - Bunching at the Kink: Implications for Spending Responses to Health Insurance Contracts JF - National Bureau of Economic Research Working Paper Series VL - No. 22369 PY - 2016 Y2 - June 2016 DO - 10.3386/w22369 UR - http://www.nber.org/papers/w22369 L1 - http://www.nber.org/papers/w22369.pdf N1 - Author contact info: Liran Einav Stanford University Department of Economics 579 Jane Stanford Way Stanford, CA 94305-6072 Tel: 650/723-3704 Fax: 650/725-5702 E-Mail: leinav@stanford.edu Amy Finkelstein Department of Economics, E52-442 MIT 77 Massachusetts Avenue Cambridge, MA 02139 Tel: 617/253-4149 Fax: 617/868-2742 E-Mail: afink@mit.edu Paul Schrimpf Vancouver School of Economics University of British Columbia 997 - 1873 East Mall Vancouver, BC V6T1Z1 E-Mail: schrimpf@mail.ubc.ca M1 - published as Liran Einav, Amy Finkelstein, Paul Schrimpf. "Bunching at the Kink: Implications for Spending Responses to Health Insurance Contracts," in Roger Gordon, Andreas Peichl and James Poterba, organizers, "Social Insurance Programs (Trans-Atlantic Public Economics Seminar, TAPES)" Journal of Public Economics, Volume 171 (Elsevier) (2019) AB - A large literature in empirical public finance relies on “bunching” to identify a behavioral response to non-linear incentives and to translate this response into an economic object to be used counterfactually. We conduct this type of analysis in the context of prescription drug insurance for the elderly in Medicare Part D, where a kink in the individual’s budget set generates substantial bunching in annual drug expenditure around the famous “donut hole.” We show that different alternative economic models can match the basic bunching pattern, but have very different quantitative implications for the counterfactual spending response to alternative insurance contracts. These findings illustrate the importance of modeling choices in mapping a compelling reduced form pattern into an economic object of interest. ER -