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Economies of scale and efficiency measurement in Switzerland's Nursing homes

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Author Info

  • Medhi Farsi

    (Department of Management, Technology and Economics, ETH Zurich, Switzerland)

  • Massimo Filippini

    (Istituto microeconomia e economia pubblica (MecoP), Facoltà di scienze economiche, Università della Svizzera italiana, Svizzera)

  • Diego Lunati

    ()
    (Istituto microeconomia e economia pubblica (MecoP), Facoltà di scienze economiche, Università della Svizzera italiana, Svizzera)

Abstract

This paper examines the cost efficiency in the nursing home industry, an issue of concern to Swiss policy makers because of the explosive growth of national expenditure on elderly care and the aging of the population. A stochastic cost frontier model with a translog function has been applied to a balanced panel data of 1780 observations from 356 nursing homes operating over five years (1998-2002) in Switzerland. We compare the estimation results from different panel data econometric techniques focusing on the various methods of specification of unobserved heterogeneity across firms. In particular, the potential effects of such unobserved factors on the estimation results and their interpretation have been discussed. The paper eventually addresses three empirical issues: (1) the measurement of economies of scale in the nursing home sector, (2) the assessment of the economic performance of the firms by estimating their cost efficiency scores, and (3) the role of unobserved heterogeneity in the estimation process. The findings suggest that the economies of scale are an important potential source of cost reduction in a majority of Swiss nursing homes. Taking the size as given the efficiency performance of most individual units is practically very close to the estimated best practice. Nevertheless, the efficiency estimates suggest that some of the nursing homes can significantly reduce their costs by improving their operations.

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Bibliographic Info

Paper provided by USI Università della Svizzera italiana in its series Quaderni della facoltà di Scienze economiche dell'Università di Lugano with number 0801.

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Length: 20 pages
Date of creation: Jan 2008
Date of revision:
Handle: RePEc:lug:wpaper:0801

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Web page: https://www.bul.sbu.usi.ch

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Keywords: COST EFFICIENCY; ECONOMIES OF SCALE; NURSING HOMES; STOCHASTIC FRONTIER; PANEL DATA;

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References

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  1. Léopold Simar & Paul Wilson, 2000. "Statistical Inference in Nonparametric Frontier Models: The State of the Art," Journal of Productivity Analysis, Springer, vol. 13(1), pages 49-78, January.
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  14. Cornes,Richard, 1992. "Duality and Modern Economics," Cambridge Books, Cambridge University Press, number 9780521336017, October.
  15. Mehdi Farsi & Massimo Filippini & Michael Kuenzle, 2005. "Unobserved heterogeneity in stochastic cost frontier models: an application to Swiss nursing homes," Applied Economics, Taylor & Francis Journals, vol. 37(18), pages 2127-2141.
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Cited by:
  1. Laura Di Giorgio & Massimo Filippini & Giuliano Masiero, 2012. "The impact of the institutional form on the cost efficiency of nursing homes," Quaderni della facoltà di Scienze economiche dell'Università di Lugano 1203, USI Università della Svizzera italiana.

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