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

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  • David M. Cutler
  • Robert S. Huckman
  • Jonathan T. Kolstad

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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Bibliographic Info

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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Publication status: published as David M. Cutler & Robert S. Huckman & Jonathan T. Kolstad, 2010. "Input Constraints and the Efficiency of Entry: Lessons from Cardiac Surgery," American Economic Journal: Economic Policy, American Economic Association, vol. 2(1), pages 51-76, February.
Handle: RePEc:nbr:nberwo:15214

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Cited by:
  1. Nick Bloom & Carol Propper & Stephan Seiler & John Van Reenen, 2010. "The impact of competition on management quality: evidence from public hospitals," LSE Research Online Documents on Economics 28731, London School of Economics and Political Science, LSE Library.
  2. Martin Gaynor & Robert J Town, 2012. "Competition in Health Care Markets," The Centre for Market and Public Organisation 12/282, Department of Economics, University of Bristol, UK.
  3. Jonathan T. Kolstad, 2013. "Information and Quality when Motivation is Intrinsic: Evidence from Surgeon Report Cards," NBER Working Papers 18804, National Bureau of Economic Research, Inc.
  4. Zack Cooper & Stephen Gibbons & Simon Jones & Alistair McGuire, 2012. "Does competition improve public hospitals’ efficiency?: evidence from a quasi-experiment in the English National Health Service," LSE Research Online Documents on Economics 42057, London School of Economics and Political Science, LSE Library.
  5. Jill R. Horwitz & Daniel Polsky, 2014. "Challenges to Regulatory Decentralization: Lessons from State Health Technology Regulation," NBER Working Papers 19801, National Bureau of Economic Research, Inc.
  6. Chou, Shin-Yi & Deily, Mary E. & Li, Suhui & Lu, Yi, 2014. "Competition and the impact of online hospital report cards," Journal of Health Economics, Elsevier, vol. 34(C), pages 42-58.
  7. Lamar Pierce & Michael W. Toffel, 2010. "The Role of Organizational Scope and Governance in Strengthening Private Monitoring," Harvard Business School Working Papers 11-004, Harvard Business School, revised Feb 2012.
  8. Martin Gaynor & Kate Ho & Robert Town, 2014. "The Industrial Organization of Health Care Markets," NBER Working Papers 19800, National Bureau of Economic Research, Inc.
  9. Suhui Li & Avi Dor, 2013. "How Do Hospitals Respond to Market Entry? Evidence from A Deregulated Market for Cardiac Revascularization," NBER Working Papers 18926, National Bureau of Economic Research, Inc.
  10. Alfons Palangkaraya & Jongsay Yong, 2013. "Effects of competition on hospital quality: an examination using hospital administrative data," The European Journal of Health Economics, Springer, vol. 14(3), pages 415-429, June.

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