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

  • Vassilis H. Aletras

    (Aristotle University of Thessaloniki, Thessaloniki, Greece)

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    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.

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    Article provided by John Wiley & Sons, Ltd. in its journal Health Economics.

    Volume (Year): 8 (1999)
    Issue (Month): 6 ()
    Pages: 521-530

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    Handle: RePEc:wly:hlthec:v:8:y:1999:i:6:p:521-530
    Contact details of provider: Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/5749

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    1. 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 302-05, May.
    2. Vita, Michael G., 1990. "Exploring hospital production relationships with flexible functional forms," Journal of Health Economics, Elsevier, vol. 9(1), pages 1-21, June.
    3. 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.
    4. 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.
    5. Grannemann, Thomas W. & Brown, Randall S. & Pauly, Mark V., 1986. "Estimating hospital costs : A multiple-output analysis," Journal of Health Economics, Elsevier, vol. 5(2), pages 107-127, June.
    6. Robert G. Evans & Hugh D. Walker, 1972. "Information Theory and the Analysis of Hospital Cost Structure," Canadian Journal of Economics, Canadian Economics Association, vol. 5(3), pages 398-418, August.
    7. 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 477-81, August.
    8. Braeutigam, Ronald R. & Daughety, Andrew F., 1983. "On the estimation of returns to scale using variable cost functions," Economics Letters, Elsevier, vol. 11(1-2), pages 25-31.
    9. Vitaliano, Donald F., 1987. "On the estimation of hospital cost functions," Journal of Health Economics, Elsevier, vol. 6(4), pages 305-318, December.
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