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Production Cost Structure of U.S. Hospital Pharmacies: Time-Series, Cross-Sectional Bed Size Evidence

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  • Okunade, Albert Ade

Abstract

There are current concerns about potential factor substitutions and their implications for factor employments and cost containment in U.S. hospital pharmacies. A translog production cost model is estimated for these pharmacies, using 1981-89 times-series data consisting of seven cross-sectional bed size classes per year. Zellner's joint GLS estimation of three-factor cost share equations and the parent translog cost function reveals that pairwise factor substitutions are severely limited; production is nonhomothetic, occurring in the range of scale diseconomies; biased and pure technical change effects dominate the scale-augmenting component. Implications of findings are rationalized in the context of the emerging biopharmaceutical technologies. Copyright 1993 by John Wiley & Sons, Ltd.

Suggested Citation

  • Okunade, Albert Ade, 1993. "Production Cost Structure of U.S. Hospital Pharmacies: Time-Series, Cross-Sectional Bed Size Evidence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(3), pages 277-294, July-Sept.
    • Handle: RePEc:jae:japmet:v:8:y:1993:i:3:p:277-94
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    Citations

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    Cited by:

    1. Daniel L. Friesner & Matthew Q. McPherson & Robert Rosenman, 2010. "Are Hospital Pharmacies More Efficient if They Employ Nurses?," Economics Bulletin, AccessEcon, vol. 30(1), pages 139-156.
    2. John Cawley & David C. Grabowski & Richard A. Hirth, 2004. "Factor Substitution and Unobserved Factor Quality in Nursing Homes," NBER Working Papers 10465, National Bureau of Economic Research, Inc.
    3. Elamin H. Elbasha & Mark L. Messonnier, 2004. "Cost‐effectiveness analysis and health care resource allocation: decision rules under variable returns to scale," Health Economics, John Wiley & Sons, Ltd., vol. 13(1), pages 21-35, January.
    4. 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.
    5. repec:ebl:ecbull:v:30:y:2010:i:1:p:139-156 is not listed on IDEAS
    6. Albert A. Okunade, 2003. "Are Factor Substitutions in HMO Industry Operations Cost Saving?," Southern Economic Journal, John Wiley & Sons, vol. 69(4), pages 800-821, April.
    7. Cawley, John & Grabowski, David C. & Hirth, Richard A., 2006. "Factor substitution in nursing homes," Journal of Health Economics, Elsevier, vol. 25(2), pages 234-247, March.
    8. Albert A. Okunade & Chutima Suraratdecha, 1998. "Cost efficiency, factor interchange, and technical progress in US specialized hospital pharmacies," Health Economics, John Wiley & Sons, Ltd., vol. 7(4), pages 363-371, June.
    9. Chutima Suraratdecha, 1996. "A model of state-level prescription drug expenditures in the USA," Applied Economics Letters, Taylor & Francis Journals, vol. 3(5), pages 289-292.

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