TY  - JOUR
AU  - Acemoglu,Daron
AU  - Finkelstein,Amy
TI  - Input and Technology Choices in Regulated Industries: Evidence From the Health Care Sector
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12254
PY  - 2006
Y2  - May 2006
UR  - http://www.nber.org/papers/w12254
L1  - http://www.nber.org/papers/w12254.pdf
N1  - Author contact info:
Daron Acemoglu
Department of Economics
MIT, E52-380B
50 Memorial Drive
Cambridge, MA  02142-1347
Tel: 617/253-1927
Fax: 617/253-1330
E-Mail: daron@mit.edu

Amy Finkelstein
Department of Economics
MIT E52-350
50 Memorial Drive
Cambridge, MA 02142
Tel: 617/253-4149
Fax: 617/868-2742
E-Mail: afink@mit.edu
M2  - featured in NBER digest on 2006-05-29
AB  - 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 a%uFB00ects firms%u2019 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%u2019 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.
ER  -