• Health Care Manag Sci · Sep 2001

    A quality-adjusted cost function in a regulated industry: the case of Dutch nursing homes.

    • J L Blank and E Eggink.
    • Social and Cultural Planning Office, The Hague, The Netherlands. jo@scp.nl
    • Health Care Manag Sci. 2001 Sep 1;4(3):201-11.

    AbstractThe primary objective of this paper is to examine the cost structure of the Dutch nursing home industry, using econometric techniques. In this paper we present a model that combines economic behaviour and quality of services measured by a latent variable. We propose a simple method for identifying and estimating cost functions in the presence of endogenous, unobserved quality. Estimating this quality-adjusted cost function and the corresponding cost share equations indicates that quality is negatively related to the input prices of nurses and other personnel, indicating that nursing homes have a preference for labour. We also show that the quality-adjusted model is superior to a model with exogenous quality.

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