Production Cost Structure of U.S. Hospital Pharmacies: Time-Series, Cross-Sectional Bed Size Evidence

Albert Okunade

Journal of Applied Econometrics, 1993, vol. 8, issue 3, 277-94

Abstract: There are current concerns about potential factor substitutions and their implications for factor employments and cost containment in U.S. hospital pharmacies. A translog production cost model is estimated for these pharmacies, using 1981-89 times-series data consisting of seven cross-sectional bed size classes per year. Zellner's joint GLS estimation of three-factor cost share equations and the parent translog cost function reveals that pairwise factor substitutions are severely limited; production is nonhomothetic, occurring in the range of scale diseconomies; biased and pure technical change effects dominate the scale-augmenting component. Implications of findings are rationalized in the context of the emerging biopharmaceutical technologies. Copyright 1993 by John Wiley & Sons, Ltd.

Date: 1993
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