Exploring hospital production relationships with flexible functional forms

J Health Econ. 1990 Jun;9(1):1-21. doi: 10.1016/0167-6296(90)90038-5.


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.

MeSH terms

  • California
  • Costs and Cost Analysis / methods*
  • Economics, Hospital / statistics & numerical data*
  • Efficiency
  • Hospital Bed Capacity
  • Length of Stay / statistics & numerical data
  • Models, Statistical
  • Multi-Institutional Systems / economics
  • Ownership
  • Patient Discharge / statistics & numerical data
  • Product Line Management / economics
  • Sampling Studies