Economies of scale and efficiency measurement in Switzerland's Nursing homes

Mehdi Farsi, Massimo Filippini and Diego Lunati ()
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Diego Lunati: Istituto microeconomia e economia pubblica (MecoP), Facoltà di scienze economiche, Università della Svizzera italiana, Svizzera

Quaderni della facoltà di Scienze economiche dell'Università di Lugano from USI Università della Svizzera italiana

Abstract: This paper examines the cost efficiency in the nursing home industry, an issue of concern to Swiss policy makers because of the explosive growth of national expenditure on elderly care and the aging of the population. A stochastic cost frontier model with a translog function has been applied to a balanced panel data of 1780 observations from 356 nursing homes operating over five years (1998-2002) in Switzerland. We compare the estimation results from different panel data econometric techniques focusing on the various methods of specification of unobserved heterogeneity across firms. In particular, the potential effects of such unobserved factors on the estimation results and their interpretation have been discussed. The paper eventually addresses three empirical issues: (1) the measurement of economies of scale in the nursing home sector, (2) the assessment of the economic performance of the firms by estimating their cost efficiency scores, and (3) the role of unobserved heterogeneity in the estimation process. The findings suggest that the economies of scale are an important potential source of cost reduction in a majority of Swiss nursing homes. Taking the size as given the efficiency performance of most individual units is practically very close to the estimated best practice. Nevertheless, the efficiency estimates suggest that some of the nursing homes can significantly reduce their costs by improving their operations.

Keywords: COST EFFICIENCY; ECONOMIES OF SCALE; NURSING HOMES; STOCHASTIC FRONTIER; PANEL DATA (search for similar items in EconPapers)
JEL-codes: C13 C21 D24 H70 I11 I18 L30 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2008-01
New Economics Papers: this item is included in nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Journal Article: Economies of Scale and Efficiency Measurement in Switzerland's Nursing Homes (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:lug:wpaper:0801

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