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Allocative Inefficiency and its Cost: The Case of the Spanish Public Hospitals

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  • Rodríguez-Álvarez, Ana
  • Fernandez, Victor
  • Lovell, Knox

Abstract

In this paper we present a new empirical model based on an input distance function from which allocative inefficiency can be obtained avoiding the "Greene Problem". Well known in the literature, this problem refers to the difficulty in practice of separating economic efficiency in its two components, technical and allocative inefficiency, using a cost system. Moreover, we develop a procedure to calculate the cost of allocative inefficiency. Using a panel of the Spanish public hospital sector to apply our methodology, we find evidence of systematic allocative inefficiency in the employment of all variable inputs. Moreover, since inputs are generally poor substitutes, the cost of this allocative inefficiency is high.

Suggested Citation

  • Rodríguez-Álvarez, Ana & Fernandez, Victor & Lovell, Knox, 2003. "Allocative Inefficiency and its Cost: The Case of the Spanish Public Hospitals," Efficiency Series Papers 2003/04, University of Oviedo, Department of Economics, Oviedo Efficiency Group (OEG).
    • Handle: RePEc:oeg:wpaper:2003/04
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    2. Rodriguez-Alvarez, Ana & Tovar, Beatriz & Trujillo, Lourdes, 2007. "Firm and time varying technical and allocative efficiency: An application to port cargo handling firms," International Journal of Production Economics, Elsevier, vol. 109(1-2), pages 149-161, September.
    3. Park, Timothy A. & Lohr, Luanne, 2010. "Assessing the Technical and Allocative Efficiency of U.S. Organic Producers," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 42(2), May.
    4. Tang, Jianjun & Folmer, Henk & Xue, Jianhong, 2015. "Technical and allocative efficiency of irrigation water use in the Guanzhong Plain, China," Food Policy, Elsevier, vol. 50(C), pages 43-52.
    5. Yu, Yingzhuo & Escalante, Cesar L. & Deng, Xiaohui, 2007. "Evaluating Agricultural Banking Efficiency Using the Fourier Flexible Functional Form," 2007 Annual Meeting, February 4-7, 2007, Mobile, Alabama 34939, Southern Agricultural Economics Association.
    6. Fabrizio Erbetta & Carmelo Petraglia, 2011. "Drivers of Regional Efficiency Differentials in Italy: Technical Inefficiency or Allocative Distortions?," Growth and Change, Wiley Blackwell, vol. 42(3), pages 351-375, September.
    7. Tim Coelli & Gholamreza Hajargasht & C.A. Knox Lovell, 2008. "Econometric Estimation of an Input Distance Function in a System of Equations," CEPA Working Papers Series WP012008, School of Economics, University of Queensland, Australia.
    8. Pablo Arocena & Ariadna García‐Prado, 2007. "Accounting for quality in the measurement of hospital performance: evidence from Costa Rica," Health Economics, John Wiley & Sons, Ltd., vol. 16(7), pages 667-685, July.
    9. Daniel Friesner & Matthew McPherson & Robert Rosenman, 2006. "Are Hospitals Seasonally Inefficient? Evidence from Washington State Hospitals," Working Papers 2006-3, School of Economic Sciences, Washington State University.
    10. Rajitkanok Puenpatom & Robert Rosenman, 2008. "Efficiency of Thai provincial public hospitals during the introduction of universal health coverage using capitation," Health Care Management Science, Springer, vol. 11(4), pages 319-338, December.
    11. Leleu, Hervé & Briec, Walter, 2009. "A DEA estimation of a lower bound for firms' allocative efficiency without information on price data," International Journal of Production Economics, Elsevier, vol. 121(1), pages 203-211, September.
    12. Nistor Cristina Silvia & Ștefănescu Cristina Alexandrina & Crișan Andrei-Răzvan, 2017. "Performance Through Efficiency in the Public Healthcare System – A DEA Approach in an Emergent Country," Studia Universitatis Babeș-Bolyai Oeconomica, Sciendo, vol. 62(1), pages 31-49, April.
    13. Jian Zhou & Chuhan Wang & Xinyu Zhang & Shuang Wang, 2022. "Public Health System and Socio-Economic Development Coupling Based on Systematic Theory: Evidence from China," Sustainability, MDPI, vol. 14(19), pages 1-14, October.
    14. Lohr, Luanne & Park, Timothy A., 2011. "Assessing the Technical and Allocative Efficiency of Marketing Decisions by U.S. Organic Producers," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 103365, Agricultural and Applied Economics Association.

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