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Scale and scope economies for drug abuse treatment costs: evidence for Washington State

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  • Jeffrey Cohen
  • Catherine Morrison Paul

Abstract

Drug abuse treatment has been pervasive in the US in the recent years, and the associated direct treatment costs approached $18 billion in 2001. However, there have been few published studies on scale economies, and none on scope economies, for drug abuse treatment costs. We estimate a restricted cost function for 17 hospitals in Washington State that provided inpatient and/or outpatient drug abuse treatment during the years 1997-2004. We find significant evidence of scale economies for hospitals that provide only outpatient drug abuse treatment services. The marginal costs of outpatient services are even smaller for hospitals that produce both outpatient and inpatient drug abuse treatment services. Further, these joint-production hospitals exhibit diseconomies of scope, or specialization economies. These results all imply that recent trends towards additional outpatient treatment services will enhance cost efficiency.

Suggested Citation

  • Jeffrey Cohen & Catherine Morrison Paul, 2011. "Scale and scope economies for drug abuse treatment costs: evidence for Washington State," Applied Economics, Taylor & Francis Journals, vol. 43(30), pages 4827-4834.
  • Handle: RePEc:taf:applec:v:43:y:2011:i:30:p:4827-4834
    DOI: 10.1080/00036846.2010.498360
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    Cited by:

    1. Cohen, Jeffrey P. & Osleeb, Jeffrey P. & Yang, Ke, 2014. "Semi-parametric regression models and economies of scale in the presence of an endogenous variable," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 252-261.

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