Analysing efficiency in the medical laboratory industry using stochastic frontier analysis

Sinan Ertemel and Levent Kutlu

Applied Economics, 2024, vol. 56, issue 59, 8846-8854

Abstract: This paper focuses on the estimation of efficiency within the medical laboratories industry, a sector of vital importance in healthcare due to its provision of essential diagnostic services. To this end, we employ three distinct stochastic frontier models to evaluate the technical efficiency of the medical laboratory industry. Our benchmark model stands out by considering the presence of heterogeneity, leading to robust findings compared to alternative models. The mean efficiency estimate is determined to be 70.6%, while the median efficiency estimate stands at 70.0%. Remarkably, our results highlight that the production technology employed in US medical laboratories demonstrates constant returns to scale. Moreover, our study delves into the intricate relationship between firm efficiency and market valuation. Our findings reveal a positive and statistically significant correlation between efficiency and market valuation. More specifically, a 1% increase in efficiency corresponds to a 1.08% increase in market valuation.

Date: 2024
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DOI: 10.1080/00036846.2023.2294273

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