A quality-adjusted cost function in a regulated industry: The case of dutch nursing homes
Blank, J. L. E., E. (2001). A quality-adjusted cost function in a regulated industry: the case of Dutch nursing homes. [Journal Article]. Health Care Manag Sci, 4(3), 201-211.
The 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.