Input and Technology Choices in Regulated Industries: Evidence From the Health Care Sector

Daron Acemoglu and Amy Finkelstein

No 12254, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper examines the implications of regulatory change for the input mix and technology choices of regulated industries. We present a simple neoclassical framework that emphasizes the change in relative factor prices associated with the regulatory change from full cost to partial cost reimbursement, and investigate how this a%uFB00ects firms%u2019 technology choices through substitution of (capital embodied) technologies for tasks previously performed by labor. We examine these implications empirically by studying the change from full cost to partial cost reimbursement under the Medicare Prospective Payment System (PPS) reform, which increased the relative price of labor faced by U.S. hospitals. Using the interaction of hospitals%u2019 pre-PPS Medicare share of patient days with the introduction of these regulatory changes, we document a substantial increase in capital-labor ratios and a large decline in labor inputs associated with PPS. Most interestingly, we find that the PPS reform seems to have encouraged the adoption of a range of new medical technologies. We also show that the reform was associated with an increase in the skill composition of these hospitals, which is consistent with technology-skill or capital-skill complementarities.

JEL-codes: H51 I18 L50 L51 O31 O33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-hea, nep-ino, nep-pbe and nep-reg
Date: Written 2006-05
Note: HC LS PE
View list of references

Downloads: (external link)
http://www.nber.org/papers/w12254.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w12254
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc
Address: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Contact information at EDIRC.
Series data maintained by ().