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Determinants and probability distribution of inefficiency in the stochastic cost frontier of Japanese hospitals

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  • Atsushi Fujii

Abstract

The purpose of this paper is to estimate the cost inefficiency of Japanese municipal hospitals using the stochastic cost frontier approach. It is assumed that hospital cost inefficiency has a truncated normal distribution in order to avoid the restrictive feature of the half-normal distribution. A model of hospital cost inefficiency in which the inefficiency is a function of some explanatory variables was defined. The stochastic cost frontier and the inefficiency model were estimated simultaneously. The results indicate that the half-normal distribution is not appropriate for the inefficiency distribution of municipal hospitals in Japan. It is also found (i) that the level of cost inefficiency is related to the government subsidy and the geographical location of the hospital; and (ii) that, when compared to the truncated normal cost inefficiency model, the half-normal model underestimates the marginal costs while it overestimates the cost inefficiency.

Suggested Citation

  • Atsushi Fujii, 2001. "Determinants and probability distribution of inefficiency in the stochastic cost frontier of Japanese hospitals," Applied Economics Letters, Taylor & Francis Journals, vol. 8(12), pages 807-812.
    • Handle: RePEc:taf:apeclt:v:8:y:2001:i:12:p:807-812
    DOI: 10.1080/13504850110046507
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    Cited by:

    1. Galina Besstremyannaya, 2011. "Managerial performance and cost efficiency of Japanese local public hospitals: A latent class stochastic frontier model," Health Economics, John Wiley & Sons, Ltd., vol. 20(S1), pages 19-34, September.
    2. Galina Besstremyannaya, 2013. "The impact of Japanese hospital financing reform on hospital efficiency: A difference-in-difference approach," The Japanese Economic Review, Japanese Economic Association, vol. 64(3), pages 337-362, September.
    3. G. Thomas Sav, 2012. "Cost Efficiencies and Rankings of Flagship Universities," American Journal of Economics and Business Administration, Science Publications, vol. 3(4), pages 596-603, January.

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