The conventional interpretation is the most robust. Economic inefficiency is estimated to be about 18 percent, comparable to published estimates for hospitals nationwide. Hospitals with over 300 beds are notably more efficient, and those with more Medicare patients are also more efficient. A reduction in excess bed capacity to control costs appears warranted. Rochester area hospitals, where a system of monopsony reimbursement exists are more efficient.
Unionized hospitals are less efficient.
The stringent regulatory system in New York does not appear to effectively control costs or to affect efficiency. Federally guaranteed student loans are intended to fill this gap. However, the federal guarantee is only a partial solution to the market failure, since student borrowing is subject to a maximum, which generally fell in real value throughout the Eighties. To the extent that these maxima are insufficient, students would continue to under invest in college. This paper tests for the existence of such borrowing constraints by studying the relationship between direct college costs and the timing of college entry.