• Endogenous treatment;
  • Latent factors;
  • Managed care;
  • Health care utilization

Summary  We develop a specification and estimation framework for a class of nonlinear, non-normal microeconometric models of treatment and outcome with selection. A latent factor structure is used to accommodate selection into treatment and a simulated likelihood method is used for estimation. The methodology is applied to examine the causal effect of managed care, a multinomial discrete choice process, on the utilization of health care services, measured as binary indicators and counts. The results indicate that there are significant unobserved self-selection effects and these effects substantially change the estimated effects of insurance on utilization.