Nonparametric analysis of returns to scale in the US hospital industry

Paul Wilson and Kathleen Carey
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Kathleen Carey: Management Science Group, US Department of Veterans Affairs, Bedford, USA, and School of Public Health, Boston University, USA, Postal: Management Science Group, US Department of Veterans Affairs, Bedford, USA, and School of Public Health, Boston University, USA

Journal of Applied Econometrics, 2004, vol. 19, issue 4, 505-524

Abstract: This paper presents new estimates of scale economies for US hospitals. We show that the common translog specification of hospital costs is a misspecification, and employ nonparametric, local linear estimation with both continuous and discrete covariates. A bootstrap method is used to provide inferences regarding ray scale economies and expansion path scale economies for a large sample of hospitals covering 1984-1996. We find evidence of changes in the structure of hospital costs over the sample period, as well as evidence of locally optimal hospital sizes. Copyright © 2004 John Wiley & Sons, Ltd.

Date: 2004
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DOI: 10.1002/jae.801

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