Input Constraints and the Efficiency of Entry: Lessons from Cardiac Surgery
David M. Cutler
Harvard University - Department of Economics; National Bureau of Economic Research (NBER)
Robert S. Huckman
Harvard Business School; National Bureau of Economic Research (NBER)
Harvard University - Faculty of Arts and Sciences
July 1, 2009
iHEA 2007 6th World Congress: Explorations in Health Economics Paper
Harvard Business School Technology & Operations Mgt. Unit Working Paper No. 10-011
Prior studies suggest that, with elastically supplied inputs, free entry may lead to an inefficiently high number of firms in equilibrium. Under input scarcity, however, the welfare loss from free entry is reduced. Further, free entry may increase use of high-quality inputs, as oligopolistic firms underuse these inputs when entry is constrained. We assess these predictions by examining how the 1996 repeal of certificate-of-need (CON) legislation in Pennsylvania affected the market for cardiac surgery in the state. We show that entry led to a redistribution of surgeries to higher-quality surgeons and that this entry was approximately welfare neutral.
Keywords: Entry, Input Constraints, Quality, Productivityworking papers series
Date posted: June 15, 2007
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