Allocative Inefficiency and its Cost: The Case of the Spanish Public Hospitals

Ana Rodríguez-Álvarez, Victor Fernandez and C. Lovell

No 2003/04, Efficiency Series Papers from University of Oviedo, Department of Economics, Oviedo Efficiency Group (OEG)

Abstract: In this paper we present a new empirical model based on an input distance function from which allocative inefficiency can be obtained avoiding the "Greene Problem". Well known in the literature, this problem refers to the difficulty in practice of separating economic efficiency in its two components, technical and allocative inefficiency, using a cost system. Moreover, we develop a procedure to calculate the cost of allocative inefficiency. Using a panel of the Spanish public hospital sector to apply our methodology, we find evidence of systematic allocative inefficiency in the employment of all variable inputs. Moreover, since inputs are generally poor substitutes, the cost of this allocative inefficiency is high.

Keywords: allocative inefficiency cost; Spanish public hospitals; duality theory; Greene problem; Morishima elasticities of substitution (search for similar items in EconPapers)
Pages: 26
Date: 2003
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Citations: View citations in EconPapers (2)

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Journal Article: Allocative inefficiency and its cost:: The case of Spanish public hospitals (2004)
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