This paper is concerned with the problem of estimating the demand for health care with panel data. A random effects model is specifed in a semiparametric Bayesian fashion using a Dirichlet process prior. This results in a very exible mixture distribution with an in nite number of\ud components for the random effects. Therefore, the model can be seen as a natural extension of prevailing latent class models. A full Bayesian analysis using Markov chain Monte Carlo (MCMC)simulation methods is discussed. The methodology is illustrated with an application using data from Germany.\u
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