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

Posted: 15 Jun 2007

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 Kolstad

Harvard University - Faculty of Arts and Sciences

Multiple version iconThere are 2 versions of this paper

Date Written: July 1, 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.

Keywords: Entry, Input Constraints, Quality, Productivity

Suggested Citation

Cutler, David M. and Huckman, Robert S. and Kolstad, Jonathan, Input Constraints and the Efficiency of Entry: Lessons from Cardiac Surgery (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. Available at SSRN: https://ssrn.com/abstract=992928 or http://dx.doi.org/10.2139/ssrn.992928

David M. Cutler (Contact Author)

Harvard University - Department of Economics ( email )

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Harvard University - Harvard Kennedy School (HKS) ( email )

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Robert S. Huckman

Harvard Business School ( email )

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National Bureau of Economic Research (NBER)

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Jonathan Kolstad

Harvard University - Faculty of Arts and Sciences ( email )

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