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A comparison of hospital scale effects in short-run and long-run cost functions

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  • Vassilis H. Aletras

    (Aristotle University of Thessaloniki, Thessaloniki, Greece)

Abstract

Numerous estimates of economies of scale in the hospital setting have been obtained since the early 1980s from both flexible long-run and short-run cost functions. Although the theoretical superiority of the latter approach is widely recognized, it has been previously suggested that the two cost specifications yield quite similar econometric findings regarding scale effects. This paper utilizes a new data set consisting of 91 Greek NHS hospitals in order to empirically examine this proposition by comparing economies of scale estimates derived from both translog total and variable cost functions. The results indicate that the use of long-run equations might seriously mislead policy makers and that constant returns to scale prevail in Greek public hospitals. Copyright © 1999 John Wiley & Sons, Ltd.

Suggested Citation

  • Vassilis H. Aletras, 1999. "A comparison of hospital scale effects in short-run and long-run cost functions," Health Economics, John Wiley & Sons, Ltd., vol. 8(6), pages 521-530.
  • Handle: RePEc:wly:hlthec:v:8:y:1999:i:6:p:521-530
    DOI: 10.1002/(SICI)1099-1050(199909)8:6<521::AID-HEC462>3.0.CO;2-G
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    References listed on IDEAS

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    1. 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.
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    4. Caves, Douglas W & Christensen, Laurits R & Tretheway, Michael W, 1980. "Flexible Cost Functions for Multiproduct Firms," The Review of Economics and Statistics, MIT Press, vol. 62(3), pages 477-481, August.
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    7. Bays, Carson W, 1980. "Specification Error in the Estimation of Hospital Cost Functions," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 302-305, May.
    8. Nelson, Randy A., 1985. "Returns to scale from variable and total cost functions : Evidence from the electric power industry," Economics Letters, Elsevier, vol. 18(2-3), pages 271-276.
    9. Vita, Michael G., 1990. "Exploring hospital production relationships with flexible functional forms," Journal of Health Economics, Elsevier, vol. 9(1), pages 1-21, June.
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    Cited by:

    1. Kristensen, Troels & Olsen, Kim Rose & Kilsmark, Jannie & Lauridsen, Jørgen T. & Pedersen, Kjeld Møller, 2012. "Economies of scale and scope in the Danish hospital sector prior to radical restructuring plans," Health Policy, Elsevier, vol. 106(2), pages 120-126.
    2. Eila Kankaanpää & Ismo Linnosmaa & Hannu Valtonen, 2011. "Public health care providers and market competition: the case of Finnish occupational health services," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 12(1), pages 3-16, February.
    3. Kontodimopoulos, Nick & Nanos, Panagiotis & Niakas, Dimitris, 2006. "Balancing efficiency of health services and equity of access in remote areas in Greece," Health Policy, Elsevier, vol. 76(1), pages 49-57, March.
    4. Mehdi Farsi & Massimo Filippini, 2008. "Effects of ownership, subsidization and teaching activities on hospital costs in Switzerland," Health Economics, John Wiley & Sons, Ltd., vol. 17(3), pages 335-350.
    5. Piacenza, Massimiliano & Turati, Gilberto & Vannoni, Davide, 2010. "Restructuring hospital industry to control public health care expenditure: The role of input substitutability," Economic Modelling, Elsevier, vol. 27(4), pages 881-890, July.
    6. Aletras, Vassilios & Kontodimopoulos, Nick & Zagouldoudis, Athanasios & Niakas, Dimitris, 2007. "The short-term effect on technical and scale efficiency of establishing regional health systems and general management in Greek NHS hospitals," Health Policy, Elsevier, vol. 83(2-3), pages 236-245, October.
    7. Eric W. Christensen, 2004. "Scale and scope economies in nursing homes: A quantile regression approach," Health Economics, John Wiley & Sons, Ltd., vol. 13(4), pages 363-377.
    8. Helda Azevedo & Céu Mateus, 2014. "Cost effects of hospital mergers in Portugal," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 15(9), pages 999-1010, December.
    9. Hiroshi Aiura, 2013. "Inter-regional competition and quality in hospital care," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 14(3), pages 515-526, June.
    10. Anne Mason & Marisa Miraldo & Luigi Siciliani & Peter Sivey & Andrew Street, 2008. "Establishing a Fair Playing Field for Payment by Results," Working Papers 039cherp, Centre for Health Economics, University of York.
    11. Kontodimopoulos, Nick & Niakas, Dimitris, 2005. "Efficiency measurement of hemodialysis units in Greece with data envelopment analysis," Health Policy, Elsevier, vol. 71(2), pages 195-204, February.
    12. Tountas, Yannis & Karnaki, Panagiota & Pavi, Elpida & Souliotis, Kyriakos, 2005. "The "unexpected" growth of the private health sector in Greece," Health Policy, Elsevier, vol. 74(2), pages 167-180, October.
    13. Brekke, Kurt R. & Cellini, Roberto & Siciliani, Luigi & Straume, Odd Rune, 2010. "Competition and quality in health care markets: A differential-game approach," Journal of Health Economics, Elsevier, vol. 29(4), pages 508-523, July.
    14. 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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