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Excess capacity and expense preference behaviour in National Health Systems: an application to the Spanish public hospitals

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  • Ana Rodr�guez-�lvarez

    (Universidad de Oviedo, Spain)

  • C. A. Knox Lovell

    (University of Georgia, USA)

Abstract

The aim of this paper is to study excess capacity in National Health System (NHS) hospitals, which have the characteristics of a bureaucracy, within a theoretically consistent framework. In this sense, we develop and estimate an empirical model which has not previously been applied to this problem. This model, based on an input distance function, is attractive for at least two reasons. Unlike the production function, the input distance function is valid for multiproduct technologies such as that of hospitals, and in contrast to the cost function it permits testing of the cost minimisation hypothesis and therefore allows expense preference behaviour in the context of NHS hospitals. We present an application to the Spanish public hospital sector and observe persistent allocative inefficiency in variable inputs and overcapitalisation in these hospitals. Hence, our results suggest that this sector is not in long-run equilibrium and that adjustments in variable inputs and capital equipment investments are necessary to control hospital cost. Copyright © 2003 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/hec.803
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Health Economics.

Volume (Year): 13 (2004)
Issue (Month): 2 ()
Pages: 157-169

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Handle: RePEc:wly:hlthec:v:13:y:2004:i:2:p:157-169

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/5749

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  1. Grosskopf Shawna & Hayes Kathy, 1993. "Local Public Sector Bureaucrats and Their Input Choices," Journal of Urban Economics, Elsevier, vol. 33(2), pages 151-166, March.
  2. Jensen, Gail A & Morrisey, Michael A, 1986. "The Role of Physicians in Hospital Production," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 432-42, August.
  3. Fare, Rolf & Grosskopf, Shawna, 1990. "A distance function approach to price efficiency," Journal of Public Economics, Elsevier, vol. 43(1), pages 123-126, October.
  4. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Keeler, Theodore E & Ying, John S, 1996. "Hospital Costs and Excess Bed Capacity: A Statistical Analysis," The Review of Economics and Statistics, MIT Press, vol. 78(3), pages 470-81, August.
  6. Guillem López Casasnovas & Adam Wagstaff, 1988. "La combinación de los factores productivos en el hospital: una aproximación a la función de producción," Investigaciones Economicas, Fundación SEPI, vol. 12(2), pages 305-327, May.
  7. R. G. Evans, 1971. "'Behavioural' Cost Functions for Hospitals," Canadian Journal of Economics, Canadian Economics Association, vol. 4(2), pages 198-215, May.
  8. Ferrier, Gary D. & Lovell, C. A. Knox, 1990. "Measuring cost efficiency in banking : Econometric and linear programming evidence," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 229-245.
  9. Mark Pauly, 1980. "Doctors and Their Workshops: Economic Models of Physician Behavior," NBER Books, National Bureau of Economic Research, Inc, number paul80-1, June.
  10. Coelli, Tim & Perelman, Sergio, 1999. "A comparison of parametric and non-parametric distance functions: With application to European railways," European Journal of Operational Research, Elsevier, vol. 117(2), pages 326-339, September.
  11. McGuire, Alistair, 1987. "The measurement of hospital efficiency," Social Science & Medicine, Elsevier, vol. 24(9), pages 719-724, January.
  12. Cornes,Richard, 1992. "Duality and Modern Economics," Cambridge Books, Cambridge University Press, number 9780521336017, April.
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Cited by:
  1. Tim Coelli & Gholamreza Hajargasht & C.A. Knox Lovell, 2008. "Econometric Estimation of an Input Distance Function in a System of Equations," CEPA Working Papers Series WP012008, School of Economics, University of Queensland, Australia.
  2. Briec, Walter & Kerstens, Kristiaan & Prior, Diego & Van de Woestyne, Ignace, 2010. "Tangency Capacity Notions Based upon the Profit and Cost Functions: A Non-Parametric Approach and a General Comparison," Working Papers 2010/04, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
  3. Lota, Tamini D. & Bruno, Larue & West, Gale E., 2011. "Technical Efficiency, Environment Efficiency, Productivity and Beneficial Management Practices," Working Papers 102067, Structure and Performance of Agriculture and Agri-products Industry (SPAA).
  4. Jos L. T. Blank & Bart L. Van Hulst, 2009. "Productive innovations in hospitals: an empirical research on the relation between technology and productivity in the Dutch hospital industry," Health Economics, John Wiley & Sons, Ltd., vol. 18(6), pages 665-679.
  5. Barros, Carlos Pestana & Menezes, Antonio & Vieira, José A. Cabral & Peypoch, Nicolas & Solonandrasana, Bernardin, 2007. "An Analysis of Hospital Efficiency and Productivity Growth Using the Luenberger Productivity Indicator," IZA Discussion Papers 2689, Institute for the Study of Labor (IZA).
  6. C. A. Knox Lovell & Ana Rodr�guez-�lvarez & Alan Wall, 2009. "The effects of stochastic demand and expense preference behaviour on public hospital costs and excess capacity," Health Economics, John Wiley & Sons, Ltd., vol. 18(2), pages 227-235.
  7. Fabrizio Erbetta & Carmelo Petraglia, 2011. "Drivers of Regional Efficiency Differentials in Italy: Technical Inefficiency or Allocative Distortions?," Growth and Change, Gatton College of Business and Economics, University of Kentucky, vol. 42(3), pages 351-375, 09.
  8. Blank, Jos L. T. & Vogelaar, Iris, 2004. "Specifying technical change: a research on the nature of technical change in Dutch hospital industry," The Quarterly Review of Economics and Finance, Elsevier, vol. 44(3), pages 448-463, July.
  9. Ana Rodríguez Álvarez & Víctor Fernández Blanco & José Baños Pino, 2005. "El efecto de la regulación sobre la eficiencia productiva: una aplicación a las compañías ferroviarias europeas," Investigaciones Economicas, Fundación SEPI, vol. 29(2), pages 351-378, May.
  10. Walter Briec & Kristiaan Kerstens & Diego Prior, 2009. "Tangency Capacity Notions Based upon the Pro?t and Cost Functions: A Non-Parametric Approach and a Comparison," Working Papers 2009-ECO-05, IESEG School of Management.
  11. Rodriguez-Alvarez, Ana & Tovar, Beatriz & Trujillo, Lourdes, 2007. "Firm and time varying technical and allocative efficiency: An application to port cargo handling firms," International Journal of Production Economics, Elsevier, vol. 109(1-2), pages 149-161, September.

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