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Economies of Scale and Efficiency Measurement in Switzerland’s Nursing Homes

Summary

This paper examines the cost efficiency in the nursing home industry, an issue of concern to Swiss policy makers because of the explosive growth of national expenditure on elderly care and the aging of the population. A stochastic cost frontier model has been applied to a panel of 1780 observations from 356 nursing homes operating over 1998–2002 in Switzerland. We compare the estimation results from different econometric techniques focusing on the specification of unobserved heterogeneity across firms. The potential effects of such unobserved factors on the estimation results and their interpretation have been discussed. The findings suggest that the economies of scale are an important potential source of cost reduction in a majority of Swiss nursing homes. Moreover the average performance of a representative nursing home is very close to the estimated best practice.

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Correspondence to Mehdi Farsi.

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Open Access This article is distributed under the terms of the Creative Commons Attribution 2.0 International License ( https://creativecommons.org/licenses/by/2.0 ), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

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Farsi, M., Filippini, M. & Lunati, D. Economies of Scale and Efficiency Measurement in Switzerland’s Nursing Homes. Swiss J Economics Statistics 144, 359–378 (2008). https://doi.org/10.1007/BF03399259

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JEL-Classification

  • C13
  • C21
  • D24
  • H70
  • I11
  • I18
  • L30

Keywords

  • cost efficiency
  • economies of scale
  • nursing homes
  • stochastic frontier
  • panel data