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Input and Technology Choices in Regulated Industries: Evidence from the Health Care Sector

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  • Daron Acemoglu
  • Amy Finkelstein

Abstract

This paper examines the implications of regulatory change for input mix and technology choices of regulated industries. We study the increase in the relative price of labor faced by U.S. hospitals that resulted from the move from full cost to partial cost reimbursement under the Medicare Prospective Payment System (PPS) reform. Using the interaction of hospitals' pre-PPS Medicare share of patient days with the introduction of PPS, we document substantial increases in capital-labor ratios and declines in labor inputs following PPS. Most interestingly, we find that PPS seems to have encouraged the adoption of a range of new medical technologies. (c) 2008 by The University of Chicago. All rights reserved.

Suggested Citation

  • Daron Acemoglu & Amy Finkelstein, 2008. "Input and Technology Choices in Regulated Industries: Evidence from the Health Care Sector," Journal of Political Economy, University of Chicago Press, vol. 116(5), pages 837-880, October.
  • Handle: RePEc:ucp:jpolec:v:116:y:2008:i:5:p:837-880
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    1. Daron Acemoglu & Amy Finkelstein, 2008. "Input and Technology Choices in Regulated Industries: Evidence from the Health Care Sector," Journal of Political Economy, University of Chicago Press, vol. 116(5), pages 837-880, October.
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    JEL classification:

    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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