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Excess capacity and expense preference behaviour in National Health Systems: an application to the Spanish public hospitals
Author(s) -
RodríguezÁlvarez Ana,
Knox Lovell C. A.
Publication year - 2004
Publication title -
health economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.55
H-Index - 109
eISSN - 1099-1050
pISSN - 1057-9230
DOI - 10.1002/hec.803
Subject(s) - allocative efficiency , inefficiency , economics , public sector , production function , bureaucracy , context (archaeology) , capacity utilization , operations management , production (economics) , econometrics , microeconomics , economy , paleontology , politics , political science , law , biology
The aim of this paper is to study excess capacity in National Health System (NHS) hospitals, which have the characteristics of a bureaucracy, within a theoretically consistent framework. In this sense, we develop and estimate an empirical model which has not previously been applied to this problem. This model, based on an input distance function, is attractive for at least two reasons. Unlike the production function, the input distance function is valid for multiproduct technologies such as that of hospitals, and in contrast to the cost function it permits testing of the cost minimisation hypothesis and therefore allows expense preference behaviour in the context of NHS hospitals. We present an application to the Spanish public hospital sector and observe persistent allocative inefficiency in variable inputs and overcapitalisation in these hospitals. Hence, our results suggest that this sector is not in long‐run equilibrium and that adjustments in variable inputs and capital equipment investments are necessary to control hospital cost. Copyright © 2003 John Wiley & Sons, Ltd.