the growing supply of physicians has the market become more competitive the stock of u s physicians at any point in time is modeled as a weighted average of the supply that a perfect cartel would produce and that would prevail under perfect competition estimation of a system of stock and income equations over the post world war ii period shows that after holding constant demand and marginal cost conditions and accounting for gradual adjustment to changes in equilibrium the weighting parameter has moved toward the competitive extreme since 1965 this rise in the degree of competition is estimated to have increased physician stock by 6 20 and concomitantly decreased medical incomes by 19 45

efficiency growth and concentration an empirical analysis of hospital markets taking an evolutionary view of markets harold demsetz hypothesized that firms differ persistently in efficiency and that industry concentration results from growth of efficient firms at the expense of inefficient ones we test the hypothesis with high quality microdata from the us hospital industry an industry of keen policy and scientific interest we measure efficiency by firm in the early 1980s and relate it to subsequent growth of efficient firms to the persistence of profit differences and to changes in the concentration of markets initial hospital efficiency and subsequent growth and profitability are significantly and positively related also greater initial variation in hospital efficiency within local markets is positively related to subsequent growth in market concentration these findings support the logic of demsetz s evolutionary efficiency hypothesis though they cannot confirm the stronger idea that variation in firm efficiency is the dominant explanation for changes in concentration

firm growth size age and behavior in japanese manufacturing this paper investigates the relationship between firm growth and firm size firm age and firm behavior such as r d activity and subcontracting based on the data of nearly 14 000 japanese manufacturing firms the stylized facts that firm size and age have a negative effect on firm growth are confirmed in the case of japanese manufacturing firms also a firm s survivability rises with its size and age r d expenditure per employee has a significant positive effect on firm growth which justifies the argument made by hall 1987 although subcontracting to only one company has no significant effect on firm growth it has a significant positive effect on a firm s survivability in addition subcon tracting firms depending on only one company as a customer are subject to no significant age effects this possibly suggests that the age effect itself has some relation to the extent of the trade network

utility maximization individual production and market equilibrium the theory of the utility maximizing owner operator firm has been well known for years because of income effects the firm s short run product supply curve can be negatively sloped and its input demand curve may be positively sloped what is not well known is whether these results hold for the industry in the long run with entry the answer to this question has serious policy implications consider for example the physicians services sector in the early 1960s 70 percent of physicians were practicing solo there was an excess demand for physician services and the ama was pretty much acting as a cartel through a variety of policies the federal government 1 increased the demand for medical services 2 induced medical schools to double their capacity in a decade and 3 heavily subsidized education entry costs for new doctors health policymakers were amazed to observe that during the 1970s the price of physician services rose faster than the overall cpi moreover the number of patients seen per week per physician fell during this period one reaction to this set of events was that due to asymetrical information physicians must have been inducing increases in the demand for their services we show that under increasing factor costs reductions in entry costs can lead to increases in market price this finding is not possible to reach by looking at the short run theory of the firm alone in addition the result does not require a negative sloped product supply curve or similar perverse results there are many other sectors primarily comprised of small firms that are owned and operated by the same individual farming homebuilding restaurants small stores hairdressers travel agencies and consulting firms many of these sectors have obtained special tax breaks and subsidies from the federal government to encourage increases in supply using the standard theory of the firm these policies seem plausible in both the short and long run in this paper we demonstrate that the efficacy of such policies are questionable when one considers the special nature of these firms in the long run the literature on the utility maximizing owner operator began with scitovsky 13 who argued that utility and profit maximization may not be equivalent in the short run in the most

taxes and labor supply of high income physicians abstract we use the 1983 1985 physicians practice costs and income survey supplemented with federal and state tax rates to estimate the effect of variation in marginal tax rates on work hours for high income physicians we find that self employed physicians are much more sensitive to the marginal tax rate than would be suggested by previous labor supply studies while those who are employees have no discernible sensitivity to marginal tax rates

hospital ownership and performance this study compares the performance of three ownership forms of hospitals for profit private nonprofit and public further classified according to whether or not the hospital is run by a hospital chain data come from a 1979 national survey of u s hospitals the authors find that hospital cost is quite similar among alternative ownership forms as is profitability the results do not provide much empirical support for standard property rights theory several reasons are suggested why this may be so

the market evolution and sales takeoff of product innovations in contrast to the prevailing supply side explanation that price decreases are the key driver of a sales takeoff we argue that outward shifting supplyand demand curves lead to market takeoff our fundamental idea is that sales in new markets are initially low because the first commercialized forms of new innovations are primitive then as new firms enter actual and perceived product quality improves and prices possibly drop which leads to a takeoff in sales to provide empirical evidence for this explanation we explore the relationship between takeoff times price decreases and firm entry for a sample of consumer and industrial product innovations commercialized in the united states over the past 150 years based on a proportional hazards analysis of takeoff times we find that new firm entry dominates other factors in explaining observed sales takeoff times we interpret these results as supporting the idea that demand shifts during the early evolution of a new market due to nonprice factors is the key driver of a sales takeoff

technology as a complex adaptive system evidence from patent data this paper develops a theory of invention by drawing on complex adaptive systems theory we see invention as a process of recombinant search over technology landscapes this framing suggests that inventors might face a complexity catastrophe when they attempt to combine highly interdependent technologies our empirical analysis of patent citation rates supports this expectation our results also suggest however that the process of invention differs in important ways from biological evolution we discuss the implications of these findings for research on technological evolution industrial change and technology strategy 2001 elsevier science b v all rights reserved

the interprovincial migration of canadian physicians does income matter this study applies a multinomial logit model of human capital migration to examine the factors influencing the movement of physicians within canadian provinces between 1976 and 1992 the empirical investigation covers general practitioners and specialists it excludes interns residents between seven regions atlantic canada quebec ontario manitoba saskatchewan alberta and british columbia the results suggest that differences in real income have a positive and significant effect on a physician s decision to migrate form one province to another provinces with the highest after tax income highest expenditure per physician and highest fee per service rates have the highest net rate of in migration income differences are however not the only factor influencing a physician s choice to move working conditions within a province which we proxy with the number of hospitals beds and health expenditures per capita are also important factors likewise the ratio of rural to urban population distance b

hospital costs and competition for services a multiproduct analysis the authors estimate the effects of market structure on hospital costs using a translog multiproduct cost function recognizing the multiplicity of services provided by hospitals the results show that costs are substantially determined by service configuration and that there are distinct economies of size and sco pe the model also distinguishes market concentration measures by servic e type including obstetrics radiation therapy diagnostic imaging a nd surgery estimates show that after controlling for the other determinants of cost the degree of competition has only modest cost increasing effects copyright 1992 by mit press

the effects of regulation and competition in the nhs internal market the case of general practice fundholder prices the 1989 reforms of the uk national health service introduced competition in supply within a tightly regulated framework the paper examines whether this competition affects the prices posted by sellers of medical services we argue that despite regulation market forces may have an impact on price we test this using the posted prices for one of the two types of buyer general practice fundholders we find the regulatory rules are not observed and some evidence of the impact of market forces on price

testing gibrat s law for small young and innovating firms this article analyses whether small young and innovating firms have experienced a greater employment growth than other spanish firms over the period 1990 2000 the study draws upon a sample of 1272 manufacturing firms in which only 967 of the firms survived for the entire ten year period the analyses test gibrat s law both by least squares and by utilizing the procedure proposed by heckman in which a probit survival equation is first estimated to correct for sample selection bias two estimators correcting for selection bias are utilized one that incorporates the inverse mill s ratio and the other that employs maximum likelihood methods all the results reject gibrat s law and support the proposition that small firms have grown larger additionally the results show that old firms grow less than young ones and innovating activity both process and product is a strong positive factor in the firm s survival and its employment growth

government as fund of fund and vc fund sponsors effect on employment in portfolio companies governments around the world have set up fund of fund programs to increase the supply of venture capital financing to young growth oriented firms in these programs a government fund of fund acts as limited partner in a venture capital fund the venture capital investment process is hereby delegated to external investors which were selected by the government fund of fund we investigate employment growth in 108 portfolio companies that benefited from the arkimedes fund of fund in flanders accounting for the heterogeneity in the types of venture capital investors managing hybrid funds and the associated goal diversity and resource endowments we find that portfolio companies backed by hybrid independent venture capital funds show greater employment growth than those backed by hybrid captive or hybrid government venture capital funds this finding is relevant because it indicates that the financial objectives of hybrid independent venture capital funds are highly compatible with the government s objective of employment growth as providing companies with superior monitoring and value adding services with the objective of realizing a successful exit creates employment in the process

the influence of age on smes growth determinants empirical evidence this paper seeks to investigate whether age is a fundamental characteristic of the relationships between determinants and growth the empirical evidence obtained allows us to conclude that 1 age and size are restrictive factors of the growth of young smes but they are not important for the growth of old smes 2 cash flow and debt are of greater relative importance for growth in young smes than for growth in old smes 3 rd 4 interest on debt is of greater relative importance for diminished growth in young smes than for diminished growth in old smes and 5 r d intensity in situations of financial deficit is of greater relative importance for diminished growth in young smes than for diminished growth in old smes but only in context of high tech smes

hospital price regulation and expenditure cap policy abstract in several european countries governments have chosen to put a global budget cap on health care expenditure this paper analyzes the strategies of the providers facing this policy and evaluates its effects on provider and patient surplus we consider this policy when it is applied to local monopoly hospitals and when it is applied to hospitals playing as cournot competitors using a two stage model to characterize the optimal expenditure cap policy taking the hospitals optimal responses as given we prove that this policy induces a level of welfare lower than the first best outcome however we show that a second best outcome may be achieved under this policy when the number of hospitals becomes large

the heterogeneous dynamics between growth and profits the case of young firms while there is an increasing interest in the literature about the relationship between profits and business growth the empirical evidence is mixed and inconclusive this can be explained by the difficulty of fully addressing the complex nature of this relationship building on resource based and evolutionary considerations the present study investigates the dynamics between growth and profits of young firms by explicitly considering the endogeneity and heterogeneity aspects of the relationship data are based on a cohort of spanish manufacturing firms tracked during the period 1996 2010 the results indicate that young firm growth has a positive impact on profits in contrast the effect of profits on growth is not significant neither is there a significant correlation between past and current growth importantly we find that the results are strongly influenced by inter firm heterogeneity implications from these findings are discussed

gibrat s law and persistence of growth in greek manufacturing this study makes use of a sample of greek manufacturing firms during 1995 2001 in order to analyze gibrat s law we find gibrat s law is rejected for the total sample of firms since persistence of growth plays a key role the classification of firms in size and age groups however yields more interesting results gibrat s law is rejected for micro small and young firms since an inverse relationship between firm growth and initial firm size is found along with a persistence of growth rates in subsequent periods in contrast gibrat s law is accepted for medium large and old firms implying that the growth patterns of these categories follow a random walk and do not tend to persist in subsequent periods

firm growth and liquidity constraints a dynamic analysis using a large unbalanced panel data set of portuguese manufacturing firms surviving over the period from 1990 to 2001 the purpose of this paper is to examine whether liquidity constraints faced by business firms affect firm growth we use a gmm system to estimate a dynamic panel data model of firm growth that incorporates cash flow as a measure of liquidity constraints and persistence of growth the model is estimated for all size classes including micro firms our findings reveal that smaller and younger firms have higher growth cash flow sensitivities than larger and more mature firms this is consistent with the suggestion that financial constraints on firm growth may be relatively more severe for small and young firms nevertheless the same finding can be interpreted in a different way if we consider the more recent literature which interpret the higher investment cash flow sensitivity of younger and smaller firm in absence of financial market imperfection as the outcome of these firms reaction to the fact that realisation of their cash flows reveals them the direction to go in presence of uncertainty of their growth prospect besides firms that were small and young at the beginning of the sample period exhibited more persistent growth than those that were large and old finally these results have significant policy implications

are there non linearities between sme growth and its determinants a quantile approach this article uses quantile regressions to study the relationship between the growth of portuguese small and medium enterprises smes and its determinants to control a sample selection bias we use a two step estimation in the first stage we verified that past growth size age rd ii debt and rd iii age is a restrictive factor of portuguese sme growth only when there is an increase in size and iv cash flow although a determinant promoting portuguese sme growth regardless of the level of growth takes on greater importance when there is a reduction in size copyright 2010 the author 2010 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

a full pricing analysis of the owner managed firm in this paper we set forth a basic analytical framework for the study of the owner managed firm which is based on the assumption that customer time is an important determinant of the optimal delivery of services earlier research done in this area has to a large extent ignored the importance of customer time in the production process 2 4 9 thus the basic trade off between the money price of the service and the opportunity cost of being serviced is ignored more recently recognition of the importance of the value of time required for the acquisition of a product has been forcefully posited in de vany and saving 7 and saving 10 the main objective of this paper is to investigate the optimal changes in the ownermanager s decision variables consumption of a composite good factor usage the supply of services and fees in response to parametric changes in such factors as non labor income prices the value of customers time and the full price of services in the main our comparative statics results yield the same implications as those obtained using standard neoclassical theory provided the revenue function of the firm is concave factors exhibit hicks allen technical complementarity and the waiting time function is quasi convex however we also obtain some new and interesting results for example we find that increasing the value of customer s time reduces aggregate consumption of the ownermanager generates a labor supply response consisting of a negative substitution effect and a positive income effect and increases the use of other factors of production we also find that unlike the standard neoclassical model even if the production function exhibits hicks allen technical complementarity the own price effects of inputs are ambiguous finally since in the full price model owner manager fees are endogenous we obtain some new and interesting results concerning the response of optimal fees to parameter changes our analysis is based on the hypothesis that the customer s opportunity cost of receiving treatment is the value placed on the time spent waiting in line to be serviced and

discontinuities and senior management assessing the role of recognition in pharmaceutical firm response to biotechnology despite an increasing emphasis on the role of senior management cognition in shaping organizational action there have been few attempts to link top management mental models to strategic choice in the face of discontinuous innovation this paper uses 23 years of data covering 15 major pharmaceutical firms to explore the degree to which each firm s response to the revolution in biotechnology was shaped by the senior team s recognition of biotechnology s importance controlling for a number of important alternative explanations we show that recognition may be an important predictor of action suggesting that cognition at the most senior level can play a critical role in shaping established firms response to discontinuities copyright 2003 oxford university press

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

virtual prices and a general theory of the owner operated firm theories of entrepreneurial behavior for owner operated firms have a long history in economics these models treat the owner operator as both a producer and consumer of goods production and consumption choices result from utility maximization a preponderance of the work performed in this area has addressed two theoretical issues the consistency of utility and profit maximization and comparative static behavior of the entrepreneur scitovszky s seminal paper 29 demonstrates that under certain circumstances the entrepreneur may trade off income for leisure giving rise to the possibility of income effects on production and inconsistency of utility and profit maximization building on scitovszky s work graaff 14 clower 6 auster and silver 3 and lapan and brown 18 analyze the comparative static behavior of the utility maximizing owner operator and how this differs from the traditional neoclassical profit maximizing firm emphasis is on the possibility of income effects on production and how they may result in seemingly uneconomic behavior a shortcoming of this literature is the focus on special cases based on strong restrictions on technology constant returns to scale and the market for the entrepreneurial input no such market exists as of yet a general analysis of the comparative static behavior of the entrepreneur has not been undertaken scitovszky s work also initiated a vigorous debate concerning the consistency of utility and profit maximization for owner operated firms this debate centers on two principal questions does utility maximization imply profit maximization if not can a utility maximizing owner operated firm survive through time piron 25 olsen 23 24 and hannon 15 conclude that in competitive long run equilibrium utility maximizing entrepreneurs necessarily maximize profit and must do so to remain viable ladd 17 auster and silver 3 feinberg 8 9 10 and schlesinger 28 conclude that utility and profit maximization may diverge moreover these writers maintain that non profit maximizing owner operated firms can survive through time more re

nonprofit hospital mergers and the exercise of market power government challenges to mergers within the hospital industry have become more frequent many of those mergers involve nonprofit organizations rather than the for profit firms that are the norm in most other industries this difference in ownership has made no apparent difference in the antitrust agencies approach to proposed hospital mergers in this article i test the proposition that nonprofit and for profit hospitals price differently in response to the structure of the markets in which they compete based on a cross sectional analysis of california hospitals i find that estimated merger effects on hospital prices do vary by type of ownership in response to either higher market share or to the joint combination of higher share and higher market concentration private nonprofit hospital prices are statistically significantly lower than for profit hospital prices and on balance in this sample there is no evidence of any systematic price increasing effect on private nonprofit hospitals

physician labor supply do income effects matter this paper estimates a model of physician labor supply focusing on the impacts of wage and non wage income we find evidence of significant income effects for male physicians the income effect of a wage change on labor supply is negative with an elasticity of 0 26 the pure substitution effect of a wage change increases labor supply a 1 increase in wages leads to a 0 49 increase in labor supply controlling for income effects the results also suggest that the labor supply decisions of females are more responsive to variations in their earnings than are those of males

is there a competitive market for hospital services this paper focuses on the price elasticity of hospital specific demand curves each hospital is assumed to practice price discrimination with respect to medicare medicaid and other patients among the third group patients covered by blue cross are analyzed separately from those who pay their own bills or are covered by commercial insurance or a health maintenance organization hmo we use two different methods to estimate the price elasticity of demand first a pricing rule is developed from which hospital specific price elasticities may be inferred second the distribution of each payer s admissions at specific hospitals is examined to determine if low priced hospitals attract more patients data for the analysis are taken from 31 hospitals in the minneapolis st paul metropolitan area in 1981 results of the first analytic method indicate that hospitals had monopoly power in their markets for blue cross and self pay commercial insurance hmo patients these results are confirmed and extended to medicare patients by the hospital demand analysis

drivers of sme performance a holistic and multivariate approach to examine the drivers of small and medium sized enterprise sme growth we adopt a holistic multivariate modelling approach integrating macroeconomic determinants with the internal firm characteristics and firm strategy drivers more commonly investigated in firm growth studies utilising such an extended set of variables addresses a gap in the extant firm growth literature in relation to external growth factors offering novel insights on the seeming randomness of firm growth our system generalised method of moments estimation results indicate that the macroeconomic environment influences firm growth both directly and indirectly based on the study of manufacturing sme growth in ireland our findings provide evidence on the integrated effects of macroeconomic conditions firm characteristics and firm strategy for sme growth they also highlight from a theoretical perspective the need to acknowledge the multidimensional nature of sme growth

measuring hospital efficiency with frontier cost functions this paper uses a stochastic frontier multiproduct cost function to derive hospital specific measures of inefficiency the cost function includes direct measures of illness severity output quality and patient outcomes to reduce the likelihood that the inefficiency estimates are capturing unmeasured differences in hospital outputs models are estimated using data from the aha annual survey medicare hospital cost reports and medpar we explicitly test the assumption of output endogeneity and reject it in this application we conclude that inefficiency accounts for 13 6 percent of total hospital costs this estimate is robust with respect to model specification and approaches to pooling data across distinct groups of hospitals

nepotism discrimination and the persistence of utility maximizing owner operated firms reply much debate in the discrimination literature surrounds whether employers with biased preferences can persist in the market 7 10 this issue is a natural extension of the broader literature on owner operated firms which focuses on the consistency of utility and profit maximization 12 13 14 18 26 27 theories of owner operated firms which have a long history in economics model the entrepreneur as both a producer and consumer of goods that determines the level of production and consumption jointly through utility maximization 2 9 16 22 31 this approach is applied in this paper to examine employer discrimination and nepotism our analysis provides necessary conditions for utility maximizing firms to persist in the market and shows how biased preferences can yield seemingly uneconomic input and output choices that are in fact rationally inefficient empirical results using data on family farms support the prediction that utility maximizing entrepreneurs trade profit for nonmarket goods and do not hire inputs to maximize profits competitive neoclassical theories of the labor market do not provide a clear theoretical resolution to the issue of persistence of employer nepotism and discrimination the employer discrimination model proposed by becker 4 5 and extended by arrow 1 postulates that entrepreneurs maximize utility that increases with profit but decreases with a nonmarket attribute of some workers e g race ethnicity or gender these models predict that white male workers may initially have better market opportunities than comparable minority or female workers however entrepreneurs who hire based on nonproductive attributes are also predicted to earn less than a normal rate of return and because they derive disutility from an aspect of owning and operating a firm can improve their welfare by leaving the industry and converting firm assets to those that do not require employment decisions e g stocks and bonds this result has the important policy implication that market intervention may not be necessary to improve the relative pay and employment of disadvantaged groups when employers are the source of the discrimination alternatively goldberg 15 uses the arrow 1 framework but postulates that employers

gasoline prices and the used automobile market a rational expectations asset price approach this paper examines the impact of changes in gasoline price expectations on the market values of used automobiles an asset model of automobile valuation is used to relate year to year changes in market values to changes in the present discounted value of gasoline expenses econometric evidence from data covering the years 1972 through 1981 substantially confirms the hypothesis of the model that a gasoline price shock causes relative price changes across automobile types in proportion to the differences in their rates of fuel consumption

the utility maximizing self employed physician we estimate a model of utility maximizing physician behavior our model accounts for the interdependence of physician input output and work leisure choices and includes an endogenous virtual wage for physician own time in the medical practice we find that solo practitioners respond to increases in marginal hourly earnings and nonpractice income by allocating less time to medical practice activities our results also suggest that fee reductions induce the substitution of physician own time for auxiliaries and the net effect of this adjustment is reduced patient loads and a decrease in supply from the existing stock of solo practitioners

the effect of incentive policies on the practice location of doctors a multinomial probit analysis in this article we estimate a spatial autoregressive multinomial probit model of the choice of location by general practitioners for establishing their initial practice this model allows us to account for potential interdependencies among location choices the model is used to assess the effect of various incentive measures introduced in quebec canada to influence the geographical distribution of physicians across 18 regions our data set covers subperiods before and after the introduction of these measures incentive policies are captured through price and income effects our results provide evidence that these measures had a significant effect on location choices

unbundling the structure of inertia resource versus routine rigidity i work to unbundle the structure of inertia into two distinct categories resource rigidity failure to change resource investment patterns and routine rigidity failure to change organizational p

know how and asset complementarity and dynamic capability accumulation the case of r d dynamic capabilities enable firms to create new products and processes and respond to changing market conditions this empirical investigation of dynamic r d capabilities deals with the role of complementary know how and other assets in the context of changing conditions in the u s petroleum industry during the 1970s and early 1980s the analysis suggests that in response to rising oil prices firms with larger amounts of complementary technological knowledge and physical assets also undertook larger amounts of r d on coal conversion a synthetic fuels process 1997 by john wiley sons ltd

hospital efficiency and indigent care 1990 hospital efficiency and indigent care applied economics vol 22 no 11 pp 1597 1610

the labour supply behaviour of self employed solo practice physicians this paper investigates the empirical labour supply behaviour of self employed solo practice physicians the specification of the empirical labour supply equation is based on a model of constrained utility maximizing behaviour that recognizes the physician makes work leisure choices based on an endogenous shadow wage and faces a nonlinear budget constraint the findings suggest that the typical self employed solo practice male physician operates on the upward sloping portion of the labour supply curve and is relatively unresponsive to changes in marginal hourly medical practice earnings and non practice income

quantile estimates of the impact of r d intensity on firm performance this paper investigates the relationship between initial research and development r d intensity and firm growth using a unique data set for firms with r d activities in austria during the period 1995 2006 results based on the least absolute deviation lad estimator show that initial r d intensity has a positive and significant impact on both employment and sales growth in the subsequent 2 years quantile regressions for each cross section reveal that the impact of r d intensity is significant from 0 3 to the highest quantile of the conditional distribution of employment growth furthermore the elasticity of employment growth with respect to r d intensity is highest for firms at or slightly below the median of the distribution of firm growth finally we find that the impact of r d decreases significantly over time

capabilities as real options strategy research consists of a balance between positive and normative theory normative theories suggest particular heuristics or cognitive representations to find appropriate solutions heuristics permit faster solutions to real time problems they also suffer from the potential of negative transfer to inappropriate applications the theory of real options provides the appropriate heuristic framing of competencies and exploratory search a real options approach marries the theory of financial options to foundational ideas in strategy organizational theory and complex systems we join these approaches to identify three pairs of concepts scarce factor and the underlying asset in option theory inertia and irreversibility and the ruggedness of landscape and option values strategic theories of resources largely define a core competence as unique and nonimmutable in doing so this definition has wrongly forgotten barney s initial insight into scarce factor markets as determining the valuation of a competitive asset financial theory of real options derives its heuristics of investing in exploratory search by inferring future value of today s investments from market prices we apply the three conceptual pairs to the evaluation of capabilities as real options through a formal descriptive model the valuation of core capabilities is derived from observing the price dynamics of correlated strategic factors in the market because of inertia managers cannot easily adjust the wrong set of organizational capabilities to the emergence of market opportunities however firms that have made investments in capabilities appropriate to these opportunities are able to respond from this description we define core competence as the choice of capabilities that permits the firm to make the best response to market opportunities the heuristic framing of capabilities as real options guides the normative evaluation of the balance between exploitation and exploration

on the coexistence of positive and negative externalities in the inter powertrain relationships abstract the green knowledge based economy has complicated the dynamical knowledge interactions in the multi technology sector of transportation that involves a constellation of interrelated powertrain technologies including the internal combustion engine hybrid and battery electric vehicles icev bev and hev based on the biological ecology perspective and the technological innovation system tis framework we explore the dynamical inter powertrain relationships in terms of knowledge diffusion over 1985 2016 we measure their knowledge diffusion by extracting patents and publications forward citations from the scopus and derwent databases respectively quantifying by the lotka volterra l v equations our results show that powertrains support and inhibit their knowledge diffusion growth by projecting positive and negative externalities which are carried through the tis co dynamics our results reveal these externalities are manifested in a mix of biological relationship modes such as symbiosis parasitism commensalism and amensalism we therefore challenge the assumed pure competition between icev and bev or their predator prey relationships with hev by elaborating on the notions of creative destruction and creative accumulation our research contributes to the innovation systems literature by accommodating knowledge diffusion co dynamics as an extension to the tis framework making it more outward oriented moreover the co existence of positive and negative externalities builds up a multi cross path interactions view that extends the conventional single path view in the path dependency literature our research drives insightful knowledge for strategising and policy making in regard with investing in new disruptive technologies sustaining the incumbent technology or hybridising them as a transitionary or stationary solution towards sustainable mobility transition

the effects of product price uncertainty on the owner managed firm theory and evidence in this paper we extend the theory of the owner managed firm to incorporate product price uncertainty and we present an empirical test of the model s predictions under product price uncertainty the trade off between leisure and profit faced by an owner manager is combined with the trade off between surety and risk bearing faced by an entrepreneur the firm s owner bears the uninsurable and undiversifiable risk about profit caused by product price uncertainty and as manager supplies the firm a unique labor factor the model predicts that the substitution effect of an increase in risk on the quantity supplied by the firm is negative the income effect of risk reinforces the substitution effect if the entrepreneur s labor supply has a positive wage elasticity but runs counter to and could dominate the substitution effect if the wage elasticity of labor supply for the entrepreneur is sufficiently negative unlike previous research on price uncertainty and the firm this paper presents an empirical test of the model s predictions using data on physicians in solo practice our empirical analysis indicates that although wage elasticities of labor supply for the physician entrepreneurs are negative greater risk leads to a reduction in output these results suggest that the substitution effect is dominant in determining the response to product price uncertainty for the owner managed firms in our sample frank knight 12 gave prominence to the risk bearing role of the entrepreneur who as residual claimant bears the risk associated with a firm s revenue tibor scitovsky 21 later emphasized a different aspect of entrepreneurial activity the trade off confronted by an ownermanager between consumption of leisure and pursuit of profit both models of the entrepreneur are relevant to predicting the behavior of an owner managed firm operating in a risky environment the entrepreneur in such a firm must choose between consuming leisure and supplying labor which provides an uncertain return the random residual of revenue net of payments to other factors

does competition between hospitals improve the quality of care hospital death rates and the nhs internal market payer driven competition has been widely advocated as a means of increasing efficiency in health care markets the 1990s reforms to the uk health service followed this path we examine whether competition led to better outcomes for patients as measured by death rates after treatment following heart attacks using data that until 1999 was not publicly available in any form on hospital level death rates we find that the relationship between competition and quality of care appears to be negative greater competition is associated with higher death rates controlling for patient mix and other observed characteristics of the hospital and the catchment area for its patients however the estimated impact of competition is small jel classification i1 l8 h4

general economic equilibrium as a unifying concept in energy economic modeling in the pristine model of general economic equilibrium producers and consumers are assumed to take prices for their inputs and outputs as given a market equilibrium solution is obtained when the prices of all products lead to equal amounts of supply and demand for each the mathematical properties of this model provide a rich and powerful unifying foundation for much of modern microeconomic theory however in many practical applications it is difficult or impossible to develop the data and formulate and solve the equations required to implement the model of general economic equilibrium in its most general form in practice generality of formulation is often sacrificed for ease of computation and interpretation these tradeoffs allow the latest breakthroughs in optimization algorithms and computer technology to be applied in the analysis of important societal problems a potential drawback associated with this otherwise desirable trend is that the analysis could become infatuated with the use of particular algorithms and lose sight of the restrictive simplifying assumptions they imply the present paper includes a comparison of the simplifying assumptions required in four of the most popular types of energy economic models with respect to the model of general economic equilibrium this comparison helps sharpen our appreciation for the tradeoffs between generalization of formulation and ease of computation and interpretation that are available the concept of general economic equilibrium is employed to provide a common framework for four ostensibly different approaches to large scale modeling 1 variable coefficient input output theory 2 process network methodology 3 linear programming and 4 general nonlinear optimization the similarities and the differences of the four approaches are isolated within this framework this comparison makes both the absolute and the relative strengths and weaknesses of the models more transparent

capital structure decisions during a firm s life cycle the study reported here examines the financing choices of small and medium sized firms i e those most vulnerable to information and incentive problems through the lens of the business life cycle we argue that the controversy in the empirical literature regarding the determinants of capital structure decisions is based on a failure to take into account the different degrees of information opacity and consequently firms characteristics and needs at specific stages of their life cycles the results show that in a bank oriented country firms tend to adopt specific financing strategies and a different hierarchy of financial decision making as they progress through the phases of their business life cycle contrary to conventional wisdom debt is shown to be fundamental to business activities in the early stages representing the first choice by contrast in the maturity stage firms re balance their capital structure gradually substituting debt for internal capital and for firms that have consolidated their business the pecking order theory shows a high degree of application this financial life cycle pattern seems to be homogeneous for different industries and consistent over time

competition among hospitals the traditional view of hospital competition has posited that hospitals compete primarily along quality dimensions in the form of fancy equipment to attract admitting physicians and pleasant surroundings to entice patients price competition among hospitals is thought to be non existent this paper estimates the effects of various hospital market characteristics on hospital prices and expenses in an attempt to determine the form of hospital competition the results suggest that both price and quality competition are greater in markets that are less concentrated although the net effect of the two on prices is insignificant it appears therefore that despite important distortions hospital markets are not immune to standard competitive forces

the effects of population aging on the physician services market a computable equilibrium analysis this paper formulates a computable equilibrium model cem of the market for physician services the simulation results based upon the cem are consistent with widely held beliefs about the effects of aging on the health care sector for example that aggregate expenditures will increase as the population ages in addition however the simulations suggest differential effects on prices and expenditures for various types of services and on expenditures by different types of consumers for example prices and aggregate expenditures for services typically used by the elderly are found to increase under older age distributions whereas prices and aggregate expenditures for other services are found to decrease elderly women are found to be unequivocally worse off under older as opposed to younger age structures they spend more yet consume fewer services

customer power strategic investment and the failure of leading firms why might firms be regarded as astutely managed at one point yet subsequently lose their positions of industry leadership when faced with technological change we present a model grounded in a study of the world disk drive industry that charts the process through which the demands of a firm s customers shape the allocation of resources in technological innovation a model that links theories of resource dependence and resource allocation we show that established firms led the industry in developing technologies of every sort even radical ones whenever the technologies addressed existing customers needs the same firms failed to develop simpler technologies that initially were only useful in emerging markets because impetus coalesces behind and resources are allocated to programs targeting powerful customers projects targeted at technologies for which no customers yet exist languish for lack of impetus and resources because the rate of technical progress can exceed the performance demanded in a market technologies which initially can only be used in emerging markets later can invade mainstream ones carrying entrant firms to victory over established companies

application specific r d capabilities and the advantage of incumbents evidence from the anticancer drug market this paper examines the proposition that during competence destroying technological changes incumbents are incompetent in researching in house a radically new technology they only retain market leadership if their undestroyed proprietary complementary assets compensate for their research incompetence in contrast to prior research i propose that there is not one but two sets of capabilities necessary to execute research and development r d sets that differ in their market specificity a technology specific set i e technological platforms that are non market specific and an application specific set i e knowledge of the application that is therefore market specific although all markets require both sets of capabilities to execute r d prior research has analyzed cases where the application was not as complex and therefore application specific capabilities did not represent strategic factors because at the start of a technological discontinuity application specific capabilities are undestroyed and have accrued only to incumbents when complex enough these capabilities can represent a source of competitive advantage for these firms even in the face of competition from diversifying entrants reusing previously acquired technological platforms i find evidence consistent with my proposition based on data on outcomes from drug discovery as estimated through clinical endpoints in phase i trials for firms competing in the anticancer drug market one of the most complex markets within pharmaceuticals as the market transitions into the biotechnology revolution the proposition in this paper implies that although technological platforms can help firms move across markets application specific r d capabilities can help firms retain leadership within a market across technological discontinuities

ambiguous changes in product quality economic goods are frequently sold according to a price per unit quantity where the quantity characteristic does not measure all the economically important characteristics of the good milk is sold by the quart automobiles rented by the mile physicians services bought by the visit and tennis lessons by the hour in all cases heterogeneous units are available in the market and the price per unit quantity depends upon the amount of the unpriced characteristic contained in each unit the per quart price of milk depends upon the butterfat content the mileage costs of automobile rentals on the cars make and the price per unit time for personal services on the providers skill and training the common distinction made between these variants of the same good is that they differ in quality where quality refers to the amounts of the unpriced attributes contained in each unit of the priced attribute thus milk is packaged according to the attribute milk liquid and the quality of milk refers to the ratio of butterfat per unit of liquid 2 this paper considers some of the unique aspects of the economics of supply and demand under this situation where products contain at least two desired attributes only one of which is quantified and measured prior to purchase product quality is here defined by the ratio of the second quality attribute per unit of the measured quantity attribute 3 this simple specification of quality allows a direct link between standard economic models of related products and the economics of variable product quality previous analyses which treat quality simply as a shift parameter in the demand function are shown to obscure the actual subtleties of supply and demand with variable endogenous quality 4 the paper proceeds by first examining the efficient quality and quantity and the competitive equilibrium the market equilibrium under monopoly is then contrasted in the second section the general theme of the

trajectories of small business financial structure a dynamic theory of the small firm is expounded assuming entrepreneurs maximise business value over a finite time horizon predicted trajectories for key financial variables are seen to depend on whether debt or equity are cheaper the predicted trajectories are compared with actual trajectories using empirical evidence from three years of detailed primary source data on one hundred and fifty new business startups in scotland evidence largely confirms predictions of the model for the cheap equity case for this case as capital and sales rise steadily debt is retired rapidly except when interest rates on long term debt are low this finding is supported by explicit empirical trajectories of key financial variables

eliciting gps preferences for pecuniary and non pecuniary job characteristics abstract this study examines general practitioners preferences for pecuniary and non pecuniary job characteristics in the context of choosing a general practice in which to work a discrete choice experiment is used to test hypotheses about the nature of the utility function marginal rates of substitution between income and non pecuniary characteristics are calculated the results suggest that policies aimed at influencing general practitioners location choices should take account of both non pecuniary and pecuniary factors particularly out of hours work commitments

fee for service payment and consultation length in general practice a work leisure trade off model for french gps this article presents an adaptation of the labour supply model applied to the independent medical sector first we model simultaneous general practitioner gp decisions on both the leisure time and the consultation length for two payment schemes fixed fees and unregulated fees the objective of this econometric study is to validate the theoretical prediction that doctors under unregulated fees may make choices about the length of patient consultations independent of their personal leisure decision indeed according to our empirical results the bidirectional link between leisure choice and consultation length verified with fixed fees does not hold any longer under unregulated fees our findings can be seen as a necessary but not a sufficient condition to legitimize unregulated fees in general practice

behavioural differences among hospitals it is ownership or location by about 1988 the consensus among leading health economists was that no meaningful differences existed among hospitals of differences owernership form and this position was embraced by the antitrust division of the us department of justice but behavioural differences among hospitals of different among hospitals of different owernership has continued to be a matter of both academic and judicial interest recent empirical studies have concluded that real differences do exist while many earlier studies reached the opposite conclusion this contradiction in finding over time as competition intensified is exactly opposite to what expense preference theory would predict we examine this apparent paradox using a very general test of behavioural differences by hospital ownership we find that the omission of location specific variables can lead to biased estimates of ownership effects and that no significant behavioural differences exist among private california hospitals in 1986 90 when this source of o

a penny for your quotes patent citations and the value of innovations the use ofpatents in economic research has been seriously hindered by the fact that patents vary enormously in their importance or value and hence simple patent counts cannot be informative about innovative output the purpose of this article is to put forward patent counts weighted by citations as indicators of the value of innovations thereby overcoming the limitations of simple counts the empirical analysis of a particular innovation computed tomography scanners indeed shows a close association between citation based patent indices and independent measures of the social value of innovations in that field moreover the weighting scheme appears to be nonlinear increasing in the number of citations implying that the informational content of citations rises at the margin as in previous studies simple patent counts are found to be highly correlated with contemporaneous rd however here the association is within afield over time rather than cross sectional

intergenerational hybrids spillbacks spillforwards and adapting to technology discontinuities during technological discontinuities incumbents frequently develop hybrids of competing technical generations although some prior work implies that such intergenerational hybrids may be the result of organizational dysfunction we propose that in some cases hybrids may be sophisticated learning tools that shape organizational adaptation to a technological discontinuity in this paper we suggest two mechanisms through which intergenerational hybrids may affect organizational adaptation spillbacks and spillforwards in an empirical test among the population of automobile carburetor manufacturers during a technological discontinuity we observe that organizations developing intergenerational hybrids capture spillback benefits knowledge spillovers from an emerging technology generation to the current generation furthermore we find that these same organizations also capture spillforwards spillover benefits from developing higher performing intergenerational hybrids that improve their product performance in the future technology generation these results suggest that intergenerational hybrids may be stepping stones for organizations to learn about and adapt to technology discontinuities

small business survival and sample selection bias analyses of small business and the factors affecting their survival are fairly common in the research literature the level of research interest may stem from the fact that in the us only about half of all new small businesses survive after 4 years headd 2003 however research attempting to understand the phenomenon that employs data using only information from and about surviving firms may lead to erroneous conclusions regarding the factors that influence firm survival and failure in this paper we provide evidence that omitted information about the firms that disappear from the research data over time leads to biased coefficient estimates comparing the heckman two step estimation approach of switching regression models to a semi parametric cox hazard model the accelerated failure time aft model we conclude that the cox atf approach is the most appropriate model for firm survival analysis

do liquidity constraints matter in explaining firm size and growth some evidence from the italian manufacturing industry the paper investigates whether liquidity constraints affect firm size and growth dynamics using a large longitudinal sample of italian manufacturing firms we run standard panel data gibrat regressions suitably expanded to take into account liquidity constraints proxied by cash flow scaled by firm sales moreover we characterize the statistical properties of fi rms size growth age and scaled cashflow distributions pooled data show that i liquidity constraints engender a negative statistically significant effect on growth once one controls for size ii smaller firms grow more and experience more volatile growth patterns after controlling for liquidity constraints iii the stronger liquidity constraints the more size negatively affects firm growth we find that pooled size distributions depart from log normality and growth rates are well approximated by fat tailed tent shaped laplace densities we also study the evolution of growth size distributions over time our exercises suggest that the strong negative impact of liquidity constraints on firm growth which was present in the pooled sample becomes ambiguous when one disaggregates across years finally firms who were young and strongly liquidity constrained at the beginning of the sample period grew persistently more than those who were old and weakly liquidity constrained

unraveling the process of creative destruction complementary assets and incumbent survival in the typesetter industry when radical technological change transforms an industry established firms sometimes fail drastically and are displaced by new entrants yet other times survive and prosper drawing upon an unusually rich data set that covers the technological and competitive history of the typesetter industry from 1886 to 1990 this paper uses a combination of quantitative and qualitative analysis to unravel this process of creative destruction it argues that the ultimate commercial performance of incumbents vs new entrants is driven by the balance and interaction of three factors investment technical capabilities and appropriability through specialized complementary assets in this industry specialized complementary assets played a crucial role in buffering incumbents from the effects of competence destruction and an analysis that examined investment or technical capabilities in isolation would have led to misleading results this work thus highlights the importance of considering multiple perspectives when examining the competitive implications of technological change 1997 by john wiley sons ltd

profit variability in for profit and not for profit hospitals this paper proposes two tests of the hypothesis that not for profit hospitals nfps behave differently than for profit hospitals the profit variability test states that the profits of an nfp will be less variable over time than profits of a for profit hospital if the nfp maximizes utility subject to a profit constraint the second test examines whether nfp profits respond less to change in exogenous factors such as medicare reimbursement rates than profits of for profit hospitals both tests performed on panel data from 1983 to 1988 support the hypothesis that nfps behave differently than for profit hospitals

the slow pace of rapid technological change gradualism and punctuation in technological change discussions of technological change have offered sharply contrasting perspectives of technological change as gradual or incremental and the image of technological change as being rapid even discontinuous these alternative perspectives are bridged using the punctuated equilibrium framework of evolutionary biology using this framework it is argued that the critical event is not a transformation of the technology but speciation the application of existing technology to a new domain of application as a result of the distinct selection criteria and the degree of resource abundance in the new domain a new technological form may emerge the new technological form may be able to penetrate other niches and in particular may precipitate a process of creative destruction and out compete prior technologies this framework is applied to an historical study of wireless communication from the early experimental efforts of hertz to the modern development of wireless telephony

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

securities analysts and incumbent response to radical technological change evidence from digital photography and internet telephony a large body of research has explored the factors that impede established firms responses to radical technological changes while it is widely acknowledged that managers face pressures from financial markets to choose strategies that maximize shareholder value little work in the technological change literature has considered the possible influences of public equity markets and the securities analysts who mediate them on incumbent firms challenged with technological change in this paper i begin to address the topic by empirically exploring how securities analysts react to the different strategies undertaken by incumbent firms faced with radical technological change i study the question in two settings the shift to digital technology in photography and the advent of voice over internet protocol voip technology in wireline telecommunications i find evidence that analysts are more attentive and positive toward incumbents strategies that extend and preserve the existing technology than toward strategies that respond directly to the new technology in these settings analysts largely ignore incumbents strategies that directly incorporate the new technology for several years following the discontinuity this study provides insights into the nature and direction of analysts reactions to firms strategies in the context of technological change and is a first step toward better understanding of the potential role of analysts and financial markets in incumbent adaptation

defending gibrat s law as a long run regularity according to gibrat s law of proportionate effect the growth rate of a given firm is independent of its size at the beginning of the period examined while earlier studies tended to confirm the law more recent research generally rejects it this article reconciles these two streams of literature taking into account the role of market selection and learning in reshaping a given population of firms through time consistently with previous studies we find that gibrat s law has to be rejected ex ante since smaller firms tend to grow faster than their larger counterparts however a significant convergence toward gibrat like behavior can be detected ex post this finding is an indication that market selection cleans the original population of firms so that the resulting industrial core does not depart from a gibrat like pattern of growth from a theoretical point of view this result is consistent with those models based on passive and active learning and can be seen as a defense of the validity of the law in the long run

hospital profits the effects of reimbursement policies this paper provides a theoretical and empirical analysis of the effect of cost based reimbursement cbr on hospital costs and charges it takes issue with previous analyses which have treated cbr as paying economic costs plus a mark up and have concluded that the mark up is too small to significantly distort hospital decision making the basic thesis here is that if reimbursement is based on costs accounting costs become a price to cost paying patients and will be optimized to maximize revenue a hospital serving both cost and charge paying private patients can set two price schedules accounting profits ratio of charges to costs are not a measure of economic profit but of relative prices to these two groups of patients in the absence of constraints from regulation or patient co payment the optimum level of accounting costs would be infinite in practice the medicare reimbursement formula links allowable costs to charges received from charge paying patients this formula creates incentives for the hospital to raise charges above the single price profit maximizing monopoly level this inflationary effect of the medicare formula does not presuppose that medicare pays less than full cost the empirical analysis of hospital laboratory costs and charges generally supports the predictions for other departments the conclusions are consistent but more tentative because of data limitations overall evidence suggests minimal cross subsidy between cost and charge paying patients comparisons of cost and charge levels in for profit voluntary non profit and government hospitals are presented but it is emphasized that inferences about relative efficiency and profitability cannot be drawn from accounting data given the incentives created by cbr

the importance of equity finance for r d activity this article analyzes the importance of equity finance for the r d activity of small and medium sized enterprises we use information on almost 6 000 german smes from a company survey using the intensity of banking competition at the district level as an instrument to control for endogeneity we find that a higher equity ratio is conducive to a higher r d intensity owners may only start r d activities if they have the financial resources to sustain them until successful completion we find a larger influence of the equity ratio for young companies equity may be more important for young companies which have to rely on the original equity investment of their owners since they have not yet accumulated retained earnings and can rely less on bank financing

the convergence of utility and profit maximization the literature discussing the conditions leading to the convergence of utility and profit maximization for owner controlled firms has a long history scitovsky initiated the discussion and derived the important result that in the short run utility and profit maximization are necessarily equivalent only when the several indifference curves of the owner are vertical displacements of each other 10 59 hereafter we refer to indifference curves that are vertical displacements of each other as the scitovsky condition ladd 6 restates scitovsky s model in mathematical form and reaches the same conclusion piron 8 extends scitovsky s analysis to the long run and concludes that utility maximizers also maximize profit recent contributions to the literature examine the issue of convergence when the entrepreneur receives nonpecuniary benefits from managing the firm olsen 7 concludes that a utility maximizer who derives benefits from being self employed does not necessarily maximize profit in either the short or long run feinberg 2 3 4 and schlesinger 9 conclude that utility and profit maximization necessarily diverge when the nonpecuniary benefits cannot be obtained outside the firm in contrast hannan 5 argues that utility and profit maximization necessarily converge even when nonpecuniary benefits exist a theoretically precise measure of the opportunity cost of entrepreneurial activity is crucial to this discussion profit is total revenue less all the opportunity costs of production including entrepreneurial activity a theoretically precise measure of the opportunity cost of such activity is therefore a prerequisite for a precise measure of profit scitovsky uses the indifference curve passing through the point indicating the choice of total leisure to gauge the opportunity cost ladd and piron follow scitovsky s procedure olsen feinberg and schlesinger hereafter ofs use the wage rate foregone as the indicator of opportunity cost

managerial commitments and technological change in the us tire industry this paper examines the response of the five largest american producers of automotive tires to a radical technological change the introduction of radial tires many theories attempt to explain firms response to radical technological change the effects of new technologies on economic incentives and on established firm capabilities are the factors highlighted in existing theory the tire producers invested heavily in radial technology despite the expected destruction of manufacturing competencies and the prospect of poor financial returns this paper suggests that an additional factor managerial commitments can also play an important role in shaping firms response to disruptive technology it argues that firms are more likely to adopt commitment enhancing than commitment destroying technologies and are likely to choose paths of implementation that are compatible with existing commitments copyright 1997 by oxford university press

voluntary and proprietary hospital behavioural response to socio economic stimuli this paper contributes to the literature on the economic aspects of hospital behaviour in the united states in these substantive ways 1 a theoretical basis for incorporating socio economic variables in the form of indices into our analysis of hospital behaviour is presented 2 it is found that hospitals of the same ownership type exhibit different economic behaviour when located in different socio economic environments in fact our results indicate that the prevailing assumption of structural homogeneity among differing ownership types is incorrect 3 findings further suggest that the relative affluence of an urban area is a better determinant of the impact of factor price variation among hospitals than the extent of urbanization alone finally the cost function specified here has broad implications for future empirical studies of hospital behaviour it is found that the flexible form quadratic approximation estimated generally gives theoretically consistent results