Input Constraints and the Efficiency of Entry: Lessons from Cardiac Surgery
iHEA 2007 6th World Congress: Explorations in Health Economics Paper
Harvard Business School Technology & Operations Mgt. Unit Working Paper No. 10-011
Posted: 15 Jun 2007
There are 2 versions of this paper
Input Constraints and the Efficiency of Entry: Lessons from Cardiac Surgery
Date Written: July 1, 2009
Abstract
Prior studies suggest that, with elastically supplied inputs, free entry may lead to an inefficiently high number of firms in equilibrium. Under input scarcity, however, the welfare loss from free entry is reduced. Further, free entry may increase use of high-quality inputs, as oligopolistic firms underuse these inputs when entry is constrained. We assess these predictions by examining how the 1996 repeal of certificate-of-need (CON) legislation in Pennsylvania affected the market for cardiac surgery in the state. We show that entry led to a redistribution of surgeries to higher-quality surgeons and that this entry was approximately welfare neutral.
Keywords: Entry, Input Constraints, Quality, Productivity
Suggested Citation: Suggested Citation
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