Production cost structure of us hospital pharmacies: Time‐series, cross‐sectional bed size evidence

Abstract

There are current concerns about potential factor substitutions and their implications for factor employments and cost containment in US hospital pharmacies. A translog production cost model is estimated for these pharmacies, using 1981–9 times‐series data consisting of seven cross‐sectional bed size classes per year. Zellner's joint GLS estimation of three‐factor cost share equations and the parent translog cost function reveals that pairwise factor substitutions are severely limited; production is non‐homothetic, occurring in the range of scale diseconomies; biased and pure technical change effects dominate the scale‐augmenting component. Implications of findings are rationalized in the context of the emerging biopharmaceutical technologies. Copyright © 1993 John Wiley & Sons, Ltd.

Publication Title

Journal of Applied Econometrics

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