Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 222: Internal Markets and Health Care Efficiency: A Multiple-Output Stochastic Frontier Analysis

Ulf-G. Gerdtham (), Mickael Löthgren (), Magnus Tambour () and Clas Rehnberg ()
Additional contact information
Ulf-G. Gerdtham: Dept. of Economics, Stockholm School of Economics, Postal: P.O. Box 6501, S-113 83 Stockholm, Sweden
Mickael Löthgren: Dept. of Economic Statistics, Stockholm School of Economics, Postal: P.O. Box 6501, S-113 83 Stockholm, Sweden
Magnus Tambour: Dept. of Economics, Stockholm School of Economics, Postal: P.O. Box 6501, S-113 83 Stockholm, Sweden
Clas Rehnberg: Dept. of Economics, Stockholm School of Economics, Postal: P.O. Box 6501, S-113 83 Stockholm, Sweden

Abstract: This paper has two purposes. The first purpose is methodological and aims to extend previous work on efficiency analysis by implementing a multiple-output stochastic ray frontier production function model. This model generalizes the single-output stochastic frontier model to multiple-input, multiple-output technologies and allows simultaneous estimation of technical efficiency and analysis of influential variables on efficiency. The second, empirical purpose, is to test for existence and magnitude of the effect of purchaser/provider split combined with new reimbursement schemes on technical efficiency in the Swedish public hospital system. The analysis is carried out with a panel data set covering the total population of 26 Swedish County Councils from 1989 to 1995. Our empirical results support the frontier model specification and indicate that output-based reimbursement improves technical efficiency. The potential saving in costs due to a switch from budget-based allocation to output-based allocation is estimated to be almost 10%.

Keywords: Internal markets; stochastic ray frontier model; technical efficiency; panel data.

JEL-codes: C12; C13; C23; D24; I10

22 pages, February 26, 1998

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