The effects of stochastic demand and expense preference behaviour on public hospital costs and excess capacity
The literature to date on the effect of demand uncertainty on public hospital costs and excess capacity has not taken into account the role of expense preference behaviour. Similarly, the research on expense preference behaviour has not taken demand uncertainty into account. In this paper, we argue that both demand uncertainty and expense preference behaviour may affect public hospital costs and excess capacity and that ignoring either of these effects may lead to biased parameter estimates and misleading inference. To show this, we extend the analysis of Rodríguez-Álvarez and Lovell (Health Econ. 2004; 13 : 157-169) by incorporating demand uncertainty into the technology to account for the hospital activity of providing standby capacity or insurance against the unexpected demand. We find that demand uncertainty in Spanish public hospitals affects hospital production decisions and increases costs. Our results also show that overcapitalization in these hospitals can be explained by hospitals providing insurance demand when faced with demand uncertainty. We also find evidence of expense preference behaviour. We conclude that both stochastic demand and expense preference behaviour should be taken into account when analysing hospital costs and production. Copyright © 2008 John Wiley & Sons, Ltd.
Volume (Year): 18 (2009)
Issue (Month): 2 ()
|Contact details of provider:|| Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/5749|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Martin Gaynor & Gerard F. Anderson, 1991. "Hospital Costs and the Cost of Empty Hospital Beds," NBER Working Papers 3872, National Bureau of Economic Research, Inc.
- Carey, Kathleen, 1998. "Stochastic Demand for Hospitals and Optimizing "Excess" Bed Capacity," Journal of Regulatory Economics, Springer, vol. 14(2), pages 165-187, September.
- R. G. Evans, 1971. "'Behavioural' Cost Functions for Hospitals," Canadian Journal of Economics, Canadian Economics Association, vol. 4(2), pages 198-215, May.
- Mike Smet, 2007. "Measuring performance in the presence of stochastic demand for hospital services: an analysis of Belgian general care hospitals," Journal of Productivity Analysis, Springer, vol. 27(1), pages 13-29, February.
- Friedman, Bernard & Pauly, Mark, 1981. "Cost Functions for a Service Firm with Variable Quality and Stochastic Demand: The Case of Hospitals," The Review of Economics and Statistics, MIT Press, vol. 63(4), pages 620-624, November.
- Hughes, David & McGuire, Alistair, 2003. "Stochastic demand, production responses and hospital costs," Journal of Health Economics, Elsevier, vol. 22(6), pages 999-1010, November.
- Ana Rodríguez-Álvarez & C. A. Knox Lovell, 2004. "Excess capacity and expense preference behaviour in National Health Systems: an application to the Spanish public hospitals," Health Economics, John Wiley & Sons, Ltd., vol. 13(2), pages 157-169.
- Duncan, Gregory M, 1990. "The Effect of Probabilistic Demands on the Structure of Cost Functions," Journal of Risk and Uncertainty, Springer, vol. 3(3), pages 211-220, September.
- Gaynor, Martin & Anderson, Gerard F., 1995.
"Uncertain demand, the structure of hospital costs, and the cost of empty hospital beds,"
Journal of Health Economics,
Elsevier, vol. 14(3), pages 291-317, August.
- Martin Gaynor & Gerard F. Anderson, 1993. "Uncertain Demand, The Structure of Hospital Costs, and the Cost of EmptyHospital Beds," NBER Working Papers 4460, National Bureau of Economic Research, Inc.
- Baker, Laurence C. & Phibbs, Ciaran S. & Guarino, Cassandra & Supina, Dylan & Reynolds, James L., 2004. "Within-year variation in hospital utilization and its implications for hospital costs," Journal of Health Economics, Elsevier, vol. 23(1), pages 191-211, January. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:wly:hlthec:v:18:y:2009:i:2:p:227-235. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.