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Hospital Industry Restructuring and Input Substitutability: Evidence from a Sample of Italian Hospitals

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Abstract

In this paper we investigate the economic rationality of the bed downsizing process characterising the hospital industry worldwide in the last decades, providing new evidence on the factor substitutability in the production of hospital services. We consider a sample of Italian regional producers and – differently from other studies – estimate a general cost function model, namely the Generalised Composite, firstly introduced by Pulley & Braunstein (1992). Alternative cost function specifications (included Translog) are estimated jointly with their associated input cost-share equations. For all models we derive Allen, Morishima and Shadow elasticities of substitution between input pairs, obtaining a fairly consistent picture across all specifications and elasticity concepts. More precisely, our results suggest a very limited degree of substitutability between factors in the production of hospital services (in particular, between beds and medical staff). These findings, consistent with previous evidence in the literature, suggest that a restructuring policy of the hospital industry which is confined to limiting the number of beds could not be a viable strategy for controlling the increase in public health care expenditure.

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  • Massimiliano Piacenza & Gilberto Turati & Davide Vannoni, 2007. "Hospital Industry Restructuring and Input Substitutability: Evidence from a Sample of Italian Hospitals," CERIS Working Paper 200703, Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY -NOW- Research Institute on Sustainable Economic Growth - Moncalieri (TO) ITALY.
  • Handle: RePEc:csc:cerisp:200703
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    1. Pulley, Lawrence B & Braunstein, Yale M, 1992. "A Composite Cost Function for Multiproduct Firms with an Application to Economies of Scope in Banking," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 221-230, May.
    2. Kumbhakar, Subal C. & Tsionas, Efthymios G., 2005. "Measuring technical and allocative inefficiency in the translog cost system: a Bayesian approach," Journal of Econometrics, Elsevier, vol. 126(2), pages 355-384, June.
    3. Daniel Bilodeau & Pierre-Yves Crémieux & Pierre Ouellette, 2002. "Hospital Technology in a Nonmarket Health Care System," Southern Economic Journal, Southern Economic Association, vol. 68(3), pages 511-529, January.
    4. McElroy, Marjorie B., 1977. "Goodness of fit for seemingly unrelated regressions : Glahn's R2y.x and Hooper's r2," Journal of Econometrics, Elsevier, vol. 6(3), pages 381-387, November.
    5. Albert A. Okunade, 2003. "Are Factor Substitutions in HMO Industry Operations Cost Saving?," Southern Economic Journal, Southern Economic Association, vol. 69(4), pages 800-821, April.
    6. Vuong, Quang H, 1989. "Likelihood Ratio Tests for Model Selection and Non-nested Hypotheses," Econometrica, Econometric Society, vol. 57(2), pages 307-333, March.
    7. Giovanni Fraquelli & Massimiliano Piacenza & Davide Vannoni, 2005. "Cost Savings From Generation and Distribution with an Application to Italian Electric Utilities," Journal of Regulatory Economics, Springer, vol. 28(3), pages 289-308, November.
    8. Kroneman, Madelon & Siegers, Jacques J., 2004. "The effect of hospital bed reduction on the use of beds: A comparative study of 10 European countries," Social Science & Medicine, Elsevier, vol. 59(8), pages 1731-1740, October.
    9. Preyra, Colin & Pink, George, 2006. "Scale and scope efficiencies through hospital consolidations," Journal of Health Economics, Elsevier, vol. 25(6), pages 1049-1068, November.
    10. 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 432-442, August.
    11. Gerald Granderson & C. A. Knox Lovell, 1998. "The Impact of Regulation on Input Substitution and Operating Cost," Southern Economic Journal, Southern Economic Association, vol. 65(1), pages 83-97, July.
    12. Chambers,Robert G., 1988. "Applied Production Analysis," Cambridge Books, Cambridge University Press, number 9780521314275, April.
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    Cited by:

    1. Matranga, Domenica & Sapienza, Francesca, 2015. "Congestion analysis to evaluate the efficiency and appropriateness of hospitals in Sicily," Health Policy, Elsevier, vol. 119(3), pages 324-332.

    More about this item

    Keywords

    Public health care expenditure; Hospital industry downsizing; Input substitutability;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises

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