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Relative Efficiency, Scale Effect, and Scope Effect of Public Hospitals: Evidence from Australia

Jian Wang

Shandong University

Zhong Zhao

Institute for the Study of Labor (IZA); Renmin University of China

Amir Mahmood

University of Newcastle (Australia)

December 2006

IZA Discussion Paper No. 2520

Using the 1997-1998 New South Wales public-hospitals comparison data, we investigate the hospital-level inefficiency by applying a stochastic-frontier multiproduct cost function. We use a flexible translog cost function to reduce the measurement errors of the outputs of the hospital. The main findings are: First, inefficiency accounts for 9.3% of total hospital costs in large hospitals and 11.3% in small hospitals, when including complexity indicators. Second, diseconomies of scale exist in very large hospitals, whereas scale economies appear in very small hospitals. Third, scope effects are found in both large and small hospitals. Fourth, small hospitals are more labor-intensive than large hospitals are.

Number of Pages in PDF File: 27

Keywords: translog cost function, economies of scale and scope, efficiency, public hospital

JEL Classification: I11, I18, C31

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Date posted: January 12, 2007  

Suggested Citation

Wang, Jian and Zhao, Zhong and Mahmood, Amir, Relative Efficiency, Scale Effect, and Scope Effect of Public Hospitals: Evidence from Australia (December 2006). IZA Discussion Paper No. 2520. Available at SSRN: http://ssrn.com/abstract=956386

Contact Information

Jian Wang
Shandong University ( email )
27 Shanda Nanlu
South Rd.
Jinan, Shandong 250100
HOME PAGE: http://www.chmp.sdu.edu.cn/Eng/content/WangJian.htm
Zhong Zhao (Contact Author)
Institute for the Study of Labor (IZA) ( email )
P.O. Box 7240
Bonn, D-53072

Renmin University of China ( email )
Room B906
Xianjin Building
Beijing, Beijing 100872
Amir Mahmood
University of Newcastle (Australia) ( email )
University Drive
Callaghan, NSW 2308
HOME PAGE: http://buslaw1.newcastle.edu.au/policy/staffdetail.cfm?staff_id=49
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