Much ado about two: reconsidering retransformation and the two-part model in health econometrics

J Health Econ. 1998 Jun;17(3):247-81. doi: 10.1016/s0167-6296(98)00030-7.


In health economics applications involving outcomes (y) and covariates (x), it is often the case that the central inferential problems of interest involve E[y/x] and its associated partial effects or elasticities. Many such outcomes have two fundamental statistical properties: y > or = 0; and the outcome y = 0 is observed with sufficient frequency that the zeros cannot be ignored econometrically. This paper (1) describes circumstances where the standard two-part model with homoskedastic retransformation will fail to provide consistent inferences about important policy parameters; and (2) demonstrates some alternative approaches that are likely to prove helpful in applications.

Publication types

  • Research Support, Non-U.S. Gov't
  • Research Support, U.S. Gov't, P.H.S.

MeSH terms

  • Data Interpretation, Statistical
  • Health Policy / economics
  • Health Services Needs and Demand / economics
  • Health Services Needs and Demand / statistics & numerical data
  • Health Services Research / economics
  • Health Services Research / methods*
  • Health Services Research / standards
  • Humans
  • Mathematical Computing
  • Models, Econometric*
  • Outcome Assessment, Health Care / economics
  • Outcome Assessment, Health Care / statistics & numerical data
  • Research Design / standards