Quality and provider choice: a multinomial logit-least-squares model with selectivity

A Federal Trade Commission survey of contact lens wearers is used to estimate a multinomial logit-least-squares model of the joint determination of provider choice and quality of care in the contact lens industry. The effect of personal and industry characteristics on a consumer's choice among three types of providers--opticians, ophthalmologists, and optometrists--is estimated via multinomial logit. The regression model of the quality of care has two features that distinguish it from previous work in the area. First, it uses an outcome rather than a structural or process measure of quality. Quality is measured as an index of the presence of seven potentially pathological eye conditions caused by poorly fitted lenses. Second, the model controls for possible selection bias that may arise from the fact that the sample observations on quality are generated by consumers' nonrandom choices of providers. The multinomial logit estimates of provider choice indicate that professional regulations limiting the commercial practices of optometrists shift demand for contact lens services away from optometrists toward ophthalmologists. Further, consumers are more likely to have their lenses fitted by opticians in states that require the licensing of opticians. The regression analysis of variations in quality across provider types shows a strong positive selection bias in the estimate of the quality of care received by consumers of ophthalmologists' services. Failure to control for this selection bias results in an overestimate of the quality of care provided by ophthalmologists.