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Hospital efficiency and transaction costs: A stochastic frontier approach

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  • Ludwig, Martijn
  • Groot, Wim
  • Van Merode, Frits

Abstract

The make-or-buy decision of organizations is an important issue in the transaction cost theory, but is usually not analyzed from an efficiency perspective. Hospitals frequently have to decide whether to outsource or not. The main question we address is: Is the make-or-buy decision affected by the efficiency of hospitals? A one-stage stochastic cost frontier equation is estimated for Dutch hospitals. The make-or-buy decisions of ten different hospital services are used as explanatory variables to explain efficiency of hospitals. It is found that for most services the make-or-buy decision is not related to efficiency. Kitchen services are an important exception to this. Large hospitals tend to outsource less, which is supported by efficiency reasons. For most hospital services, outsourcing does not significantly affect the efficiency of hospitals. The focus on the make-or-buy decision may therefore be less important than often assumed.

Suggested Citation

  • Ludwig, Martijn & Groot, Wim & Van Merode, Frits, 2009. "Hospital efficiency and transaction costs: A stochastic frontier approach," Social Science & Medicine, Elsevier, vol. 69(1), pages 61-67, July.
    • Handle: RePEc:eee:socmed:v:69:y:2009:i:1:p:61-67
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    References listed on IDEAS

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    Cited by:

    1. Bernhard Eicher, 2016. "Selection of asset investment models by hospitals: examination of influencing factors, using Switzerland as an example," International Journal of Health Planning and Management, Wiley Blackwell, vol. 31(4), pages 554-579, October.
    2. Aysun, Uluc & Bouvet, Florence & Hofler, Richard, 2014. "An alternative measure of structural unemployment," Economic Modelling, Elsevier, vol. 38(C), pages 592-603.
    3. Borowska, Mariola & Augustynowicz, Anna & Bobiński, Krzysztof & Waszkiewicz, Michał & Czerw, Aleksandra, 2020. "Selected factors determining outsourcing of basic operations in healthcare entities in Poland," Health Policy, Elsevier, vol. 124(4), pages 486-490.
    4. Martijn Ludwig & Frits Merode & Wim Groot, 2010. "Principal agent relationships and the efficiency of hospitals," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 11(3), pages 291-304, June.

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