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Does Higher Cost Inefficiency Imply Higher Profit Inefficiency? - Evidence on Inefficiency and Ownership of German Hospitals

  • Annika Herr
  • Hendrik Schmitz
  • Boris Augurzky

This paper investigates cost and profit efficiency of German hospitals. More specifically, it deals with the question how hospital efficiency varies with ownership, patient structure and other exogenous factors, which are neither inputs nor outputs of the production process. We conduct a Stochastic Frontier Analysis (SFA) on a multifaceted administrative German dataset combined with the balance sheets of 374 hospitals for the years 2002 to 2005.The results indicate that private (for-profit) and (private) non-profit hospitals are on average less cost efficient but more profit efficient than publicly owned hospitals.

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File URL: http://repec.rwi-essen.de/files/REP_09_132.pdf
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Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0132.

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Length: 28 pages
Date of creation: Aug 2009
Date of revision:
Handle: RePEc:rwi:repape:0132
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  1. Allen N. Berger & Loretta J. Mester, 1997. "Inside the Black Box: What Explains Differences in the Efficiencies of Financial Institutions?," Center for Financial Institutions Working Papers 97-04, Wharton School Center for Financial Institutions, University of Pennsylvania.
  2. Zuckerman, Stephen & Hadley, Jack & Iezzoni, Lisa, 1994. "Measuring hospital efficiency with frontier cost functions," Journal of Health Economics, Elsevier, vol. 13(3), pages 255-280, October.
  3. Subal C. Kumbhakar, 2001. "Estimation of Profit Functions When Profit Is Not Maximum," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(1), pages 1-19.
  4. Jalal D. Akhavein & Allen N. Berger & David B. Humphrey, 1997. "The effects of megamergers on efficiency and prices: evidence from a bank profit function," Finance and Economics Discussion Series 1997-9, Board of Governors of the Federal Reserve System (U.S.).
  5. Wang, Hung-Jen, 2002. "Heteroscedasticity and non-monotonic efficiency effects of a stochastic frontier model," MPRA Paper 31076, University Library of Munich, Germany.
  6. Hung-jen Wang & Peter Schmidt, 2002. "One-Step and Two-Step Estimation of the Effects of Exogenous Variables on Technical Efficiency Levels," Journal of Productivity Analysis, Springer, vol. 18(2), pages 129-144, September.
  7. Ali, Farman & Parikh, Ashok & Shah, Mir Kalan, 1996. "Measurement of economic efficiency using the behavioral and stochastic cost frontier approach," Journal of Policy Modeling, Elsevier, vol. 18(3), pages 271-287, June.
  8. Bruce Hollingsworth, 2008. "The measurement of efficiency and productivity of health care delivery," Health Economics, John Wiley & Sons, Ltd., vol. 17(10), pages 1107-1128.
  9. Hoerger, Thomas J., 1991. "'Profit' variability in for-profit and not-for-profit hospitals," Journal of Health Economics, Elsevier, vol. 10(3), pages 259-289, October.
  10. Subal Kumbhakar, 2006. "Specification and estimation of nonstandard profit functions," Empirical Economics, Springer, vol. 31(3), pages 799-799, September.
  11. Annika Herr, 2008. "Cost and technical efficiency of German hospitals: does ownership matter?," Health Economics, John Wiley & Sons, Ltd., vol. 17(9), pages 1057-1071.
  12. Michael D. Rosko, 2001. "Cost efficiency of US hospitals: a stochastic frontier approach," Health Economics, John Wiley & Sons, Ltd., vol. 10(6), pages 539-551.
  13. Villalonga, Belen, 2000. "Privatization and efficiency: differentiating ownership effects from political, organizational, and dynamic effects," Journal of Economic Behavior & Organization, Elsevier, vol. 42(1), pages 43-74, May.
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