This paper focuses on structural damage from the Northridge earthquake of 1994 as an exogenous shock to hospital capacity in the Los Angeles area. The exogenous shock allows us to identify the effect of reduced capacity on prices by avoiding the standard problem that market variables, such as prices and capacity, are typically determined endogenously. Hospitals in areas unaffected by the earthquake serve as a control group to establish expected prices in the absence of capacity changes. The findings are consistent with a significant positive price effect from the reduced capacity.
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Paper provided by University of California at Berkeley in its series Economics Working Papers with number
95-244.