Input Constraints and the Efficiency of Entry: Lessons from Cardiac Surgery

43 Pages Posted: 18 Aug 2009 Last revised: 29 Jul 2010

See all articles by David M. Cutler

David M. Cutler

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Robert S. Huckman

Harvard Business School; National Bureau of Economic Research (NBER)

Jonathan T. Kolstad

University of Pennsylvania - Health Care Systems Department

Multiple version iconThere are 2 versions of this paper

Date Written: August 2009

Abstract

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.

Suggested Citation

Cutler, David M. and Huckman, Robert S. and Kolstad, Jonathan T., Input Constraints and the Efficiency of Entry: Lessons from Cardiac Surgery (August 2009). NBER Working Paper No. w15214. Available at SSRN: https://ssrn.com/abstract=1454930

David M. Cutler (Contact Author)

Harvard University - Department of Economics ( email )

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Robert S. Huckman

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Jonathan T. Kolstad

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