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Input Constraints and the Efficiency of Entry: Lessons from Cardiac Surgery

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Author Info
David M. Cutler
Robert S. Huckman
Jonathan T. Kolstad

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Abstract

Prior studies suggest that, with elastically supplied inputs, free entry may lead to an inefficiently high number of firms in equilibrium. Under input scarcity, however, the welfare loss from free entry is reduced. Further, free entry may increase use of high-quality inputs, as oligopolistic firms underuse these inputs when entry is constrained. We assess these predictions by examining how the 1996 repeal of certificate-of-need (CON) legislation in Pennsylvania affected the market for cardiac surgery in the state. We show that entry led to a redistribution of surgeries to higher-quality surgeons and that this entry was approximately welfare neutral.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15214.

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Date of creation: Aug 2009
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Handle: RePEc:nbr:nberwo:15214

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Find related papers by JEL classification:
I10 - Health, Education, and Welfare - - Health - - - General
I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
L5 - Industrial Organization - - Regulation and Industrial Policy
L8 - Industrial Organization - - Industry Studies: Services

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  2. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
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  11. Bresnahan, Timothy F & Reiss, Peter C, 1991. "Entry and Competition in Concentrated Markets," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 977-1009, October. [Downloadable!] (restricted)
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