NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Input and Technology Choices in Regulated Industries: Evidence From the Health Care Sector

Daron Acemoglu, Amy Finkelstein

NBER Working Paper No. 12254
Issued in May 2006
NBER Program(s):   HC   LS   PE

This paper examines the implications of regulatory change for the input mix and technology choices of regulated industries. We present a simple neoclassical framework that emphasizes the change in relative factor prices associated with the regulatory change from full cost to partial cost reimbursement, and investigate how this affects firms’ technology choices through substitution of (capital embodied) technologies for tasks previously performed by labor. We examine these implications empirically by studying the change from full cost to partial cost reimbursement under the Medicare Prospective Payment System (PPS) reform, which increased the relative price of labor faced by U.S. hospitals. Using the interaction of hospitals’ pre-PPS Medicare share of patient days with the introduction of these regulatory changes, we document a substantial increase in capital-labor ratios and a large decline in labor inputs associated with PPS. Most interestingly, we find that the PPS reform seems to have encouraged the adoption of a range of new medical technologies. We also show that the reform was associated with an increase in the skill composition of these hospitals, which is consistent with technology-skill or capital-skill complementarities.

download in pdf format
   (565 K)

email paper

The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.

This paper is available as PDF (565 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w12254

Published: Daron Acemoglu & Amy Finkelstein, 2008. "Input and Technology Choices in Regulated Industries: Evidence from the Health Care Sector," Journal of Political Economy, University of Chicago Press, vol. 116(5), pages 837-880, October.

Users who downloaded this paper also downloaded these:
Chandra and Skinner w16953 Technology Growth and Expenditure Growth in Health Care
Finkelstein w11619 The Aggregate Effects of Health Insurance: Evidence from the Introduction of Medicare
Acemoglu, Cutler, Finkelstein, and Linn w11949 Did Medicare Induce Pharmaceutical Innovation?
Acemoglu and Linn w10038 Market Size in Innovation: Theory and Evidence From the Pharmaceutical Industry
Acemoglu w14809 When Does Labor Scarcity Encourage Innovation?
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us