MGEC34H3 Lecture Notes - Lecture 6: Data Envelopment Analysis, Allocative Efficiency, Technological Change

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The production, cost and technology of health care (chapter 6) Empirical cost-function studies: long-run vs. short-run studies, structural vs. behavioral cost functions. Difficulties faced by all hospital cost studies. Summary: empirical cost studies and economies of scale. Frontier analysis: the data envelopment analysis (dea) approach, the stochastic frontier analysis (sfa) approach. The uses of hospital efficiency studies: total hospital efficiency. Health care price increases when technological change occurs. Other factors that may affect adoption rates. Economies of scale refer to a declining long-run average cost. Several recent contributions find economies of scale that depend on the nature of the hospital: technical inefficiency occurs when a firm fails to achieve the maximum potential output from a given set of inputs. It can be measured as a relative distance from the frontier production function or correspondingly as a distance from the isoquants of the frontier production function.

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