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Excess capacity and expense preference behaviour in National Health Systems: an application to the Spanish public hospitals

  • Ana Rodr�guez-�lvarez

    (Universidad de Oviedo, Spain)

  • C. A. Knox Lovell

    (University of Georgia, USA)

The aim of this paper is to study excess capacity in National Health System (NHS) hospitals, which have the characteristics of a bureaucracy, within a theoretically consistent framework. In this sense, we develop and estimate an empirical model which has not previously been applied to this problem. This model, based on an input distance function, is attractive for at least two reasons. Unlike the production function, the input distance function is valid for multiproduct technologies such as that of hospitals, and in contrast to the cost function it permits testing of the cost minimisation hypothesis and therefore allows expense preference behaviour in the context of NHS hospitals. We present an application to the Spanish public hospital sector and observe persistent allocative inefficiency in variable inputs and overcapitalisation in these hospitals. Hence, our results suggest that this sector is not in long-run equilibrium and that adjustments in variable inputs and capital equipment investments are necessary to control hospital cost. Copyright © 2003 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/hec.803
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Article provided by John Wiley & Sons, Ltd. in its journal Health Economics.

Volume (Year): 13 (2004)
Issue (Month): 2 ()
Pages: 157-169

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Handle: RePEc:wly:hlthec:v:13:y:2004:i:2:p:157-169
Contact details of provider: Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/5749

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  1. R. G. Evans, 1971. "'Behavioural' Cost Functions for Hospitals," Canadian Journal of Economics, Canadian Economics Association, vol. 4(2), pages 198-215, May.
  2. Fare, Rolf & Grosskopf, Shawna, 1990. "A distance function approach to price efficiency," Journal of Public Economics, Elsevier, vol. 43(1), pages 123-126, October.
  3. Mark Pauly, 1980. "Doctors and Their Workshops: Economic Models of Physician Behavior," NBER Books, National Bureau of Economic Research, Inc, number paul80-1, October.
  4. Keeler, Theodore E & Ying, John S, 1996. "Hospital Costs and Excess Bed Capacity: A Statistical Analysis," The Review of Economics and Statistics, MIT Press, vol. 78(3), pages 470-81, August.
  5. McGuire, Alistair, 1987. "The measurement of hospital efficiency," Social Science & Medicine, Elsevier, vol. 24(9), pages 719-724, January.
  6. Ferrier, Gary D. & Lovell, C. A. Knox, 1990. "Measuring cost efficiency in banking : Econometric and linear programming evidence," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 229-245.
  7. Guillem López Casasnovas & Adam Wagstaff, 1988. "La combinación de los factores productivos en el hospital: una aproximación a la función de producción," Investigaciones Economicas, Fundación SEPI, vol. 12(2), pages 305-327, May.
  8. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November.
  9. Jensen, Gail A & Morrisey, Michael A, 1986. "The Role of Physicians in Hospital Production," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 432-42, August.
  10. Coelli, Tim & Perelman, Sergio, 1999. "A comparison of parametric and non-parametric distance functions: With application to European railways," European Journal of Operational Research, Elsevier, vol. 117(2), pages 326-339, September.
  11. Grosskopf Shawna & Hayes Kathy, 1993. "Local Public Sector Bureaucrats and Their Input Choices," Journal of Urban Economics, Elsevier, vol. 33(2), pages 151-166, March.
  12. repec:cup:cbooks:9780521336017 is not listed on IDEAS
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