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A comparison of hospital scale effects in short-run and long-run cost functions

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  • Vassilis H. Aletras

    (Aristotle University of Thessaloniki, Thessaloniki, Greece)

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    Abstract

    Numerous estimates of economies of scale in the hospital setting have been obtained since the early 1980s from both flexible long-run and short-run cost functions. Although the theoretical superiority of the latter approach is widely recognized, it has been previously suggested that the two cost specifications yield quite similar econometric findings regarding scale effects. This paper utilizes a new data set consisting of 91 Greek NHS hospitals in order to empirically examine this proposition by comparing economies of scale estimates derived from both translog total and variable cost functions. The results indicate that the use of long-run equations might seriously mislead policy makers and that constant returns to scale prevail in Greek public hospitals. Copyright © 1999 John Wiley & Sons, Ltd.

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    Bibliographic Info

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

    Volume (Year): 8 (1999)
    Issue (Month): 6 ()
    Pages: 521-530

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    Handle: RePEc:wly:hlthec:v:8:y:1999:i:6:p:521-530

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

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    1. Caves, Douglas W & Christensen, Laurits R & Tretheway, Michael W, 1980. "Flexible Cost Functions for Multiproduct Firms," The Review of Economics and Statistics, MIT Press, vol. 62(3), pages 477-81, August.
    2. Anthony Scott & David Parkin, 1995. "Investigating hospital efficiency in the new NHS: The role of the translog cost function," Health Economics, John Wiley & Sons, Ltd., vol. 4(6), pages 467-478, November.
    3. Bays, Carson W, 1980. "Specification Error in the Estimation of Hospital Cost Functions," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 302-05, May.
    4. Braeutigam, Ronald R. & Daughety, Andrew F., 1983. "On the estimation of returns to scale using variable cost functions," Economics Letters, Elsevier, vol. 11(1-2), pages 25-31.
    5. Robert G. Evans & Hugh D. Walker, 1972. "Information Theory and the Analysis of Hospital Cost Structure," Canadian Journal of Economics, Canadian Economics Association, vol. 5(3), pages 398-418, August.
    6. Vita, Michael G., 1990. "Exploring hospital production relationships with flexible functional forms," Journal of Health Economics, Elsevier, vol. 9(1), pages 1-21, June.
    7. Grannemann, Thomas W. & Brown, Randall S. & Pauly, Mark V., 1986. "Estimating hospital costs : A multiple-output analysis," Journal of Health Economics, Elsevier, vol. 5(2), pages 107-127, June.
    8. Vitaliano, Donald F., 1987. "On the estimation of hospital cost functions," Journal of Health Economics, Elsevier, vol. 6(4), pages 305-318, December.
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    Citations

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    Cited by:
    1. Kontodimopoulos, Nick & Nanos, Panagiotis & Niakas, Dimitris, 2006. "Balancing efficiency of health services and equity of access in remote areas in Greece," Health Policy, Elsevier, vol. 76(1), pages 49-57, March.
    2. Eila Kankaanpää & Ismo Linnosmaa & Hannu Valtonen, 2011. "Public health care providers and market competition: the case of Finnish occupational health services," The European Journal of Health Economics, Springer, vol. 12(1), pages 3-16, February.
    3. Anne Mason & Marisa Miraldo & Luigi Siciliani & Peter Sivey & Andrew Street, 2008. "Establishing a Fair Playing Field for Payment by Results," Working Papers 039cherp, Centre for Health Economics, University of York.
    4. Aletras, Vassilios & Kontodimopoulos, Nick & Zagouldoudis, Athanasios & Niakas, Dimitris, 2007. "The short-term effect on technical and scale efficiency of establishing regional health systems and general management in Greek NHS hospitals," Health Policy, Elsevier, vol. 83(2-3), pages 236-245, October.
    5. Kontodimopoulos, Nick & Niakas, Dimitris, 2005. "Efficiency measurement of hemodialysis units in Greece with data envelopment analysis," Health Policy, Elsevier, vol. 71(2), pages 195-204, February.
    6. Eric W. Christensen, 2004. "Scale and scope economies in nursing homes: A quantile regression approach," Health Economics, John Wiley & Sons, Ltd., vol. 13(4), pages 363-377.
    7. Brekke, Kurt R. & Cellini, Roberto & Siciliani, Luigi & Straume, Odd Rune, 2010. "Competition and quality in health care markets: A differential-game approach," Journal of Health Economics, Elsevier, vol. 29(4), pages 508-523, July.
    8. Mehdi Farsi & Massimo Filippini, 2008. "Effects of ownership, subsidization and teaching activities on hospital costs in Switzerland," Health Economics, John Wiley & Sons, Ltd., vol. 17(3), pages 335-350.
    9. Hiroshi Aiura, 2013. "Inter-regional competition and quality in hospital care," The European Journal of Health Economics, Springer, vol. 14(3), pages 515-526, June.
    10. Kristensen, Troels & Olsen, Kim Rose & Kilsmark, Jannie & Lauridsen, Jørgen T. & Pedersen, Kjeld Møller, 2012. "Economies of scale and scope in the Danish hospital sector prior to radical restructuring plans," Health Policy, Elsevier, vol. 106(2), pages 120-126.
    11. Piacenza, Massimiliano & Turati, Gilberto & Vannoni, Davide, 2010. "Restructuring hospital industry to control public health care expenditure: The role of input substitutability," Economic Modelling, Elsevier, vol. 27(4), pages 881-890, July.

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