Comparing alternative models: log vs Cox proportional hazard?

Abstract

Health economists often use log models (based on OLS or generalized linear models) to deal with skewed outcomes such as those found in health expenditures and inpatient length of stay. Some recent studies have employed Cox proportional hazard regression as a less parametric alternative to OLS and GLM models, even when there was no need to correct for censoring. This study examines how well the alternative estimators behave econometrically in terms of bias when the data are skewed to the right. Specifically we provide evidence on the performance of the Cox model under a variety of data generating mechanisms and compare it to the estimators studied recently in Manning and Mullahy (2001). No single alternative is best under all of the conditions examined here. However, the gamma regression model with a log link seems to be more robust to alternative data generating mechanisms than either OLS on ln(y) or Cox proportional hazards regression. We find that the proportional hazard assumption is an essential requirement to obtain consistent estimate of the E(y|x) using the Cox model.

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