Abstract:
:Data from 166 general hospitals in New York State (1981) is used to estimate a quadratic and logarithmic long-run cost function. Both equations fit the data very well but give very different results. The quadratic appears in confirm the commonly-held view of a shallow U-shaped average cost curve, whereas the log function indicates significant economies of scale: a total and average cost elasticity of 0.9 and -0.10, respectively (using beds or patient days to measure output). Ramsey's RESET test is used to discriminate between the two models and the quadratic is clearly rejected as a misspecification. Scale economies thus exist even where the usual quadratic suggests otherwise.
journal_name
J Health Econjournal_title
Journal of health economicsauthors
Vitaliano DFdoi
10.1016/0167-6296(87)90018-xsubject
Has Abstractpub_date
1987-12-01 00:00:00pages
305-18issue
4eissn
0167-6296issn
1879-1646pii
0167-6296(87)90018-Xjournal_volume
6pub_type
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