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Relative Efficiency, Scale Effect, and Scope Effect of Public Hospitals: Evidence from Australia

Author

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  • Wang, Jian

    () (Shandong University)

  • Zhao, Zhong

    () (Renmin University of China)

  • Mahmood, Amir

    () (University of Newcastle, Australia)

Abstract

Using the 1997-1998 New South Wales public-hospitals comparison data, we investigate the hospital-level inefficiency by applying a stochastic-frontier multiproduct cost function. We use a flexible translog cost function to reduce the measurement errors of the outputs of the hospital. The main findings are: First, inefficiency accounts for 9.3% of total hospital costs in large hospitals and 11.3% in small hospitals, when including complexity indicators. Second, diseconomies of scale exist in very large hospitals, whereas scale economies appear in very small hospitals. Third, scope effects are found in both large and small hospitals. Fourth, small hospitals are more labor-intensive than large hospitals are.

Suggested Citation

  • Wang, Jian & Zhao, Zhong & Mahmood, Amir, 2006. "Relative Efficiency, Scale Effect, and Scope Effect of Public Hospitals: Evidence from Australia," IZA Discussion Papers 2520, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp2520
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    References listed on IDEAS

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    1. Christensen, Laurits R & Jorgenson, Dale W & Lau, Lawrence J, 1973. "Transcendental Logarithmic Production Frontiers," The Review of Economics and Statistics, MIT Press, vol. 55(1), pages 28-45, February.
    2. 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.
    3. Wagstaff, Adam & Barnum, Howard, 1992. "Hospital cost functions for developing countries," Policy Research Working Paper Series 1044, The World Bank.
    4. Jondrow, James & Knox Lovell, C. A. & Materov, Ivan S. & Schmidt, Peter, 1982. "On the estimation of technical inefficiency in the stochastic frontier production function model," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 233-238, August.
    5. Randall Randall P. Ellis, 1991. "Hospital Cost Function Estimation When Firms May Not Try to Minimize Total Costs," Papers 0029, Boston University - Industry Studies Programme.
    6. Dor, Avi & Farley, Dean E., 1996. "Payment source and the cost of hospital care: Evidence from a multiproduct cost function with multiple payers," Journal of Health Economics, Elsevier, vol. 15(1), pages 1-21, February.
    7. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
    8. Breyer, Friedrich, 1987. "The specification of a hospital cost function : A comment on the recent literature," Journal of Health Economics, Elsevier, vol. 6(2), pages 147-157, June.
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    Cited by:

    1. Chew Lian Chua & Alfons Palangkaraya & Jongsay Yong, 2011. "Hospital Competition, Technical Efficiency and Quality," The Economic Record, The Economic Society of Australia, vol. 87(277), pages 252-268, June.
    2. Pedro Simões & Rui Marques, 2011. "Performance and congestion analysis of the portuguese hospital services," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 19(1), pages 39-63, March.

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    Keywords

    translog cost function; economies of scale and scope; efficiency; public hospital;

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