on the estimation of hospital cost functions abstract data from 166 general hospitals in new york state 1981 is used to estimate a quadratic and logarithmic long run cost function both equations fit the data very well but give very different results the quadratic appears to confirm the commonly held view of a shallow u shaped average cost curve whereas the log function indicates significant economies of scale a total and average cost elasticity of 0 9 and 0 10 respectively using beds or patient days to measure output ramsey s reset test is used to discriminate between the two models and the quadratic is clearly rejected as a misspecification scale economies thus exist even where the usual quadratic suggests otherwise

measuring hospital performance a non parametric approach abstract in this paper a technique for assessing the relative performance of firms is introduced and applied to a sample of hospitals in california hospitals are compared on the basis of their relative technical efficiency the reference technology is constructed from observed outputs and inputs including physicians using programming techniques and efficiency is assessed relative to the frontier of the technology using measures similar to those suggested by farrell the technique used here imposes no prespecified functional form allows for multiple outputs and inputs allowing for differences in case mix and yields information on the productive performance of individual hospitals this technique can also be used to determine whether different types of hospitals use different technologies our results although illustrative rather than definitive suggest that ownership affects efficiency as measured here public and nfp hospitals have different best practice frontiers and public hospitals appear to use relatively fewer resources these results could reflect differences in quality of care by ownership

econometric studies in health economics a survey of the british literature this paper provides a survey of british applied econometric work in the field of health economics as well as reviewing the literature it suggests some avenues for future research it covers six main areas the supply of health care the demand for health care non medical influences on health market and non price rationing evaluation of health care systems and planning budgeting and monitoring mechanisms

productivity in public services abstract this paper discusses issues arising in the measurement of productivity in public services compared to measuring productivity in the private sector difficulties arise because the output of public services is often unpriced and because some public services are consumed collectively a key problem is measuring the full range of outputs and quality improvements delivered by public sector organizations that are valued by society without comprehensive measures of output productivity statistics may be misleading i outline methods used in the measurement of both private and public sector productivity and discuss the measurement of public sector productivity in practice finally i discuss studies that examine factors underlying productivity differences and productivity growth in public and private sector organizations public sector reforms and the use of pilot schemes in public sector organizations present opportunities for research to identify causal effects on productivity

stochastic models for strategic resource allocation in nonprofit foreclosed housing acquisitions abstract increased rates of mortgage foreclosures in the u s have had devastating social and economic impacts during and after the 2008 financial crisis as part of the response to this problem nonprofit organizations such as community development corporations cdcs have been trying to mitigate the negative impacts of mortgage foreclosures by acquiring and redeveloping foreclosed properties we consider the strategic resource allocation decisions for these organizations which involve budget allocations to different neighborhoods under cost and return uncertainty based on interactions with a cdc we develop stochastic integer programming based frameworks for this decision problem and assess the practical value of the models by using real world data both policy related and computational analyses are performed and several insights such as the trade offs between different objectives and the efficiency of different solution approaches are presented

a hedonic prices approach to hospitalization costs the case of israel the paper suggests a hedonic prices approach to estimate the cost of hospital services it applies this approach to israeli data as a first approximation of hospitalization costs in that country in the absence of accounting data this approach enables us to estimate the relative cost of basic hospital services how hospital characteristics affect cost and how cost changes with time moreover it provides for a standardized measure to view the relative efficiency of a cross section of hospitals several findings based on israeli data demonstrate the potential of the approach and may be of general interest first controlling for department mix bigger hospitals which are usually also teaching hospitals and may have a different case mix incur higher cost per admission than smaller hospitals second by institution general sick fund hospitals are more expensive but also experience in terms of budget allocations less discrimination than government hospitals hence provision of equitable service may be less efficient than in services where there is budgetary discrimination to induce specialization etc third hospitals have been subject to inflationary pressures over and above the general inflation level in israel as may be the case in most other western countries fourth a comparison of cost per admission across hospitals and over time shows that cost has been consistently increasing in particular hospitals and falling in others beyond the average increases warranted by growth in size changes in composition and hospitalization specific inflation more research is needed in order to explain these unexplained but consistent trends

the impacts of membership in multi hospital systems on cost productivity growth and technical change abstractwe examine whether affiliation in a multi hospital system contributes to higher rates of total factor productivity tfp growth technological progress and cost efficiency with a 1996 to 1999 panel of 248 us hospitals some are private nonprofit church related and other nonprofit and the remaining are public government nonfederal empirical results indicate that urban system member hospitals experienced higher rates of both tfp growth and technical progress than the rates of tfp growth and technical progress experienced by urban nonsystem hospitals rural system member hospitals experienced smaller rates of both tfp decline and technical regress than the rates of tfp decline and technical regress experienced by rural nonsystem hospitals

addressing the issues that arise in analysing multicentre cost data with application to a multinational study differences in the mean spread and skewness of cost data collected from different countries present problems for analysis and interpretation here we develop generalised linear multilevel models to estimate the effects of patient and national characteristics on costs using gamma distributions and multiplicative effects for patient characteristics fitted the data better than models which assumed normal distributions or estimated additive effects a multilevel gamma model is employed to allow for heterogeneity in the effects of patient case mix across centres analysis of multinational cost data must recognise differences in mean spread and skewness across centres as well as the data s hierarchical structure

climate change and optimal energy technology r d policy public policy response to global climate change presents a classic problem of decision making under uncertainty theoretical work has shown that explicitly accounting for uncertainty and learning in climate change can have a large impact on optimal policy especially technology policy however theory also shows that the specific impacts of uncertainty are ambiguous in this paper we provide a framework that combines economics and decision analysis to implement probabilistic data on energy technology research and development r d policy in response to global climate change we find that given a budget constraint the composition of the optimal r d portfolio is highly diversified and robust to risk in climate damages the overall optimal investment into technical change however does depend in a non monotonic way on the risk in climate damages finally we show that in order to properly value r d abatement must be included as a recourse decision

the impact of hospital market structure on patient volume average length of stay and the cost of care a variety of recent proposals rely heavily on market forces as a means of controlling hospital cost inflation sceptics argue however that increased competition might lead to cost increasing acquisitions of specialized clinical services and other forms of non price competition as means of attracting physicians and patients using data from hospitals in 1972 we analyzed the impact of market structure on average hospital costs measured in terms of both cost per patient and cost per patient day under the retrospective reimbursement system in place at the time hospitals in more competitive environments exhibited significantly higher costs of production than did those in less competitive environments

intradaily price volume adjustments of nyse stocks to unexpected earnings the speed and path of adjustment in stocks to the degree of earnings surprise in their quarterly announcements are studied using price volume transactions data a differential price adjustment process was observed with stocks having large positive earnings surprises experiencing a faster adjustment compared with those stocks with negative earnings surprises volume transaction frequency and size were found to be directly related to the absolute degree of surprise but very favorable earnings surprise stocks experienced initially a large number of smaller trades while stocks with large unfavorable earnings surprises had relatively fewer transactions but higher volume per trade the stock market s microstructure has received increasing attention from researchers especially from an empirical perspective as transaction data on prices and volume have become more readily available 1 an important subset of this research has been the study of stock price adjustments to significant news events specifically publicly announced information with economic content should be quickly reflected in prices in an unbiased manner this paper contains a study of the intradaily adjustment in stocks to the informational content of earnings reports using price changes trading volume and transaction frequency and size we examine the transaction to transaction and time series stock behavior associated with different degrees of earnings surprise embedded in earnings announcements the degree of surprise is measured by a comparison of actual with forecasted earnings for 325 new york stock exchange nyse firms these firms are subdivided into five earnings surprise categories in order to determine whether the speed and path of their price volume adjustment processes are different one question of interest is whether the adjustment process for favorable versus unfavorable earnings surprises is similar or different another is whether any adjustment is distinguished by a few large trades or a large number of smaller

time varying relationship of news sentiment implied volatility and stock returns abstracti examine the relationship between aggregate news sentiment s p 500 index spx returns and changes in the implied volatility index vix i find a significant negative contemporaneous relationship between changes in vix and both news sentiment and stock returns this relationship is asymmetric whereby changes in vix are larger following negative news and or stock market declines vector autoregression var analysis of the dynamics and cross dependencies between variables reveals a strong positive relationship between previous and current period changes in implied volatility and stock returns while current period and lagged news sentiment has a significant positive negative relationship with stock returns changes in vix i develop a simple trading strategy whereby high low levels of implied volatility signal attractive opportunities to take short long positions in the underlying index while extremely negative positive news sentiment signals opportunities to enter short long index

exploring hospital production relationships with flexible functional forms this paper estimates a multiproduct variable cost function using data on a sample of california hospitals the results provide useful insights into the advantages and disadvantages of flexible functional forms for cost analysis the translog function appears to provide reasonable estimates of marginal costs when evaluated at or near the approximation point of the function the estimated function performs less satisfactorily however when evaluated outside this range the paper s results do not provide strong evidence of either ray scale economies or of weak cost complementarities there is some evidence however that the degree of scale economies may be underestimated

a theory of yardstick competition in the typical regulatory scheme a franchised monopoly has little incentive to reduce costs this article proposes a mechanism in which the price the regulatedfirm receives depends on the costs of identical firms in equilibrium each firm chooses a socially efficient level of cost reduction the mechanism generalizes to cover heterogeneous firms with observable differences medicare s prospective reimbursement of hospitals by using diagnostically related groups is a scheme very similar to the one outlined here

investigating productivity change and hospital size a nonparametric frontier approach the study obtains measures of the productive efficiency of larger and smaller northern ireland hospitals during the 1986 92 pre trust period the measures provide insights into how these hospitals were responding to the pressures for increased efficiency prior to trust status they also constitute a useful benchmark for evaluating productivity change under the post 1992 trust status environment a nonparametric frontier approach is used to measure productivity change and to decompose this into technical change or shifts in the best practice frontier and efficiency change or change in how far a hospital is from the frontier the latter change in efficiency is also decomposed into changes in scale efficiency pure technical efficiency and input congestion the findings indicate that smaller hospitals starting from a less efficient base achieved greater productivity gains than larger hospitals over 1986 92 for smaller hospitals this was due to progressive shifts in the best practice frontier outw

what do stochastic frontier cost functions tell us about inefficiency abstract recent studies using the stochastic frontier approach have suggested high levels of inefficiency in nursing home and hospital facilities this paper makes two observations first one could falsely estimate high levels of inefficiency if a statistical assumption zero skewness of the random component of the cost residual is violated second an inefficient industry may be difficult to distinguish either statistically or visually from an industry free of inefficiency if available panel data yields more robust estimates of cost differences among nursing homes or hospitals

the fear and exuberance from implied volatility of s p 100 index options i study the relation between option traders risk perception and contemporaneous market conditions risk perception tends to increase when downside volatility increases more than upside volatility the risk return relation is asymmetric and nonlinear best described as a downward sloping reclined s curve that prior gains appear to have some mitigating effect on the fear of loss relative to prior losses points to a house money effect broader market conditions influence the perception of risk in a manner consistent with the keeping up with the joneses effect leverage is a weak explanation for the risk return relation

coordinating supply chains with competition capacity allocation in semiconductor manufacturing abstract this paper motivated by the experiences of a major us based semiconductor manufacturer presents an integrated model of incentive problems arising in forecasting and capacity allocation our model involves multiple product managers and multiple manufacturing managers who forecast the means of their respective demand and capacity distributions a central coordinator is responsible for allocating capacities to product lines when these distributions are unknown to the central coordinator and capacity is scarce the managers misrepresent their forecasts a product manager inflates his forecast to gain a greater allocation of the capacity a manufacturing manager deflates his forecast to cover for the uncertainties in production we propose a game theoretic model and design a mechanism a bonus scheme for all managers and an allocation rule to allocate realized capacity to the product managers that elicits truthful reporting by all managers the results herein show that the structure of the truth eliciting bonus schemes is rather simple with easily calculable parameters we also show that large classes of allocation rules including the current allocation practice of the firm are manipulable a bonus is often required for elicitation of truthful information we synthesize the implications of our results for the practitioners

dynamic r d investment policies this paper examines dynamic r d investment policies and the valuation of r d programs in a contingent claims framework we incorporate the following characteristics of r d programs into our model learning by doing collateral learning between different projects in the program interaction between project cash flows periodic reevaluations of the program different intensities of investment capital rationing constraints and competition we show that a firm may invest in multiple projects even if only one can be implemented after development is complete furthermore the firm may significantly alter its funding policy over time for example it may simultaneously develop multiple projects for a period of time then focus on a lead project and potentially resume funding of a backup project if the lead project fails to deliver on its early promise we show how a firm can forecast expected r d spending through time for an optimally executed r d program while project volatility plays an important role in determining r d program value we find that for high volatility projects the optimal investment policy is not very sensitive to changes in or misestimation of volatility in considering whether to accelerate development of a project a firm should balance the adverse effects of increased costs and the loss of investment flexibility against the positive effects of rapid uncertainty resolution and accelerated cash flows in the presence of a budget constraint that prevents the firm from simultaneously accelerating projects and developing projects in parallel we find that if one project significantly dominates another early in the development stage the option to accelerate the lead project is likely to be more valuable than the option to exchange projects thus the backup project would be shelved in order to commit extra resources to development of the lead project finally competition from other firms leads to more parallel investment in the early development stages of projects less parallel investment in the latter stages of development and lower overall investment

adjustable robustness for multi attribute project portfolio selection abstract robust portfolio modeling rpm supports multi attribute project portfolio selection with uncertain project scores and decision maker preferences by determining non dominated portfolios for all possible realizations of uncertain parameters decision recommendations produced by rpm may prove too conservative for real life decision problems we develop a methodology to reduce the set of possible realizations by limiting the number of project scores that may simultaneously deviate from their most likely value by adjusting this limit decision makers can choose desired levels of conservatism our approach also allows to capture dependencies among project scores as well as uncertainty in portfolio constraints

r d investment strategy for climate change abstract the economic costs of stabilizing greenhouse gas concentrations over the coming century depend critically on the development of new technologies in the energy sector our research and development r d investment strategy is the control variable for technology availability this paper proposes an analytic framework for determining optimal r d investment allocation and presents some numerical results to demonstrate the implementation of the methodology the value of technological advance in three targeted areas fossil based generation renewables and carbon capture and storage is represented by the increase in expected welfare in the presence of an emissions policy constraint of initially uncertain stringency r d expenditure increases the probability of advance optimal investment is determined by its relationship with success probability which is assumed to exhibit decreasing returns to scale relative to the value of success while the numerical results are speculative the paper offers insights into the nature of an optimal technology strategy for addressing climate change

project management under risk using the real options approach to evaluate flexibility in r d managerial flexibility has value in the context of uncertain r d projects as management can repeatedly gather information about uncertain project and market characteristics and based on this information change its course of action this value is now well accepted and referred to as real option value we introduce in addition to the familiar real option of abandonment the option of corrective action that management can take during the project the intuition from options pricing theory is that higher uncertainty in project payoffs increases the real option value of managerial decision flexibility however r d managers face uncertainty not only in payoffs but also from many other sources we identify five example types of r d uncertainty in market payoffs project budgets product performance market requirements and project schedules how do they influence the value from managerial flexibility we find that if uncertainty is resolved or costs revenues occurafter all decisions have been made more variability may smear out contingencies and thus reduce the value of flexibility in addition variability may reduce the probability of flexibility ever being exercised which also reduces its value this result runs counter to established option pricing theory intuition and contributes to a better risk management in r d projects our model builds intuition for r d managers as to when it is and when it is not worthwhile to delay commitments for example by postponing a design freeze thus maintaining flexibility in r d projects

frontier estimation how useful a tool for health economics the journal is pleased to publish in this issue three papers that apply frontier estimation techniques to hospitals and nursing homes together with an exchange over the usefulness of those techniques in the health care context the papers represent the current state of the art with respect to applications of frontier estimation in health care because of the growing popularity of the technique no doubt in part from its availability in standard software packages it seems useful to take this opportunity to appraise its usefulness one might begin by asking usefulness for what assuming one could define a frontier with certainty how would one use such knowledge a straightforward application in health care appears to be to reimbursement because both data envelopment analysis dea and stochastic frontier estimation specify the least cost mix of inputs for a given output both methods can in principle be used to determine whether a given firm hospital or nursing home is efficient and if the answer to that question is no the magnitude of any inefficiency it is not a large step from that information to the notion that a regulator should reduce the firm s budget by the amount of the measured inefficiency indeed vitaliano and toren mention the boren amendment s requirement that the medicaid program reimburse hospitals and nursing homes at the cost incurred by an efficiently operated

an international comparison of hospital efficiency does institutional environment matter the consensus among many health economists is that no meaningful performance differences exist among for profit and non profit hospitals in the us but this topic has continued to be a matter of academic judicial and public policy interest a similar debate has ensued internationally regarding the potential efficiency gains from privatization of public enterprises in this paper we examine empirical evidence from the public highly regulated norwegian hospital sector and the private highly competitive and unregulated california hospital sector to ascertain whether institutional environment and level of market competition significantly affect the degree of productive efficiency in hospitals we compare and discuss the productive efficiency of four similar sets of hospitals operating in different institutional and competitive environments the four samples are carefully matched in the dimensions of sample size hospital size and average lengths of stay heterogeneity in output definition is used to co

the specification of a hospital cost function a comment on the recent literature in the empirical estimation of hospital cost functions two radically different types of specifications have been chosen to date ad hoc forms and flexible functional forms based on neoclassical production theory this paper discusses the respective strengths and weaknesses of both approaches and emphasizes the apparently unreconcilable conflict between the goals of maintaining functional flexibility and keeping the number of variables manageable if at the same time patient heterogeneity is to be adequately reflected in the case mix variables a new specification is proposed which strikes a compromise between these goals and the underlying assumptions are discussed critically

optimal sequential investment decisions under conditions of uncertainty this paper presents a mathematical model of sequential investment behavior under conditions of uncertainty the model addresses the problem of an investor with access to a limited pool of capital who makes sequential decisions on long lasting investments under uncertainty as to the timing or the quality of future opportunities we derive optimal investment strategies for the cases where the return from investment is a convex or concave function we present closed form solutions for commonly adopted return functions and we evaluate how the optimal investment behavior should change when changes occur in the environment or the underlying probability distributions in addition we analyze three modifications of the problem the results presented in this paper extend previous results on investment behavior for long lasting irreversible decisions in addition some results are in accordance with existing ones from portfolio theory and or search theory

dynamic portfolio selection of npd programs using marginal returns selecting program portfolios within a budget constraint is an important challenge in the management of new product development npd optimal portfolios are difficult to define because of the combinatorial complexity of project combinations however at the aggregate level of the strategic allocation of resources across product lines investment in a program is not an all or nothing decision but can beadjusted resulting in a higher or lower program benefit e g higher or lower quality in some cases resources can be adjusted even for individual projects with this insight one can usemarginal analysis to optimally allocate the scarce budget this article develops a dynamic model of resource allocation taking into account multiple interacting factors such as independent or correlated uncertain market payoffs that change over time increasing or decreasing returns from the npd investment carry over of the investment benefit over multiple periods and interactions across market segments we characterize optimal policies in closed form and derive qualitative decision rules for managers

measuring production efficiency of acute hospitals in scotland 1991 94 validity issues in data envelopment analysis data envelopment analysis is a potentially useful technique for measuring production efficiency and is being increasingly applied to health care services as with other areas however some fundamental concerns need to be addressed before data envelopment analysis can be accepted widely as a routine tool these include issues of validity and specification error this paper suggests a broad framework for assessing validity which should be developed further and gives illustrative examples of the problems in a real application within health care data from 75 scottish acute hospitals for three years from 1991 94 are analysed internal validity is assessed by examining the effect on the results obtained of the choice of inputs and outputs selected for analysis external validity is assessed by examining differences in the results obtained from the data for each of the three years in both cases it is concluded that there is a disturbing lack of concordance between the different results obtained caution mu