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Cost Efficiency and Scale Economies in General Dental Practices in the U.S.: A Non-parametric and Parametric Analysis

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  • Lei Chen

    (University of Connecticut)

  • Subhash C. Ray

    (University of Connecticut)

Abstract

This paper uses both the non-parametric method of Data Envelopment Analysis (DEA) and the econometric method of Stochastic Frontier Analysis (SFA) to study the production technology and cost efficiency of the U.S. dental care industry using practice level data. The American Dental Association (ADA) 2006 survey data for a number of general dental practices in Colorado are used for the empirical analyses. The result shows that the average cost efficiency score is 0.79 for DEA and 0.87 for SFA, and the cost inefficiency comes mainly from the allocative inefficiency. The minimum average cost of production is 50.6 cents for each dollar of gross billing generated. The optimal output level for a dental practice to fully exploit the economies of scale is at $1.68 million. Both DEA and SFA provide generally consistent results.

Suggested Citation

  • Lei Chen & Subhash C. Ray, 2010. "Cost Efficiency and Scale Economies in General Dental Practices in the U.S.: A Non-parametric and Parametric Analysis," Working papers 2010-11, University of Connecticut, Department of Economics.
  • Handle: RePEc:uct:uconnp:2010-11
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    References listed on IDEAS

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    3. Hoyt Bleakley, 2010. "Malaria Eradication in the Americas: A Retrospective Analysis of Childhood Exposure," American Economic Journal: Applied Economics, American Economic Association, vol. 2(2), pages 1-45, April.
    4. Masters, William A & McMillan, Margaret S, 2001. "Climate and Scale in Economic Growth," Journal of Economic Growth, Springer, vol. 6(3), pages 167-186, September.
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    More about this item

    Keywords

    Dental Care; Cost Efficiency; Economies of Scale; Data Envelopment Analysis; Stochastic Frontier Analysis;

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • D2 - Microeconomics - - Production and Organizations

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