Davide VANNONI
Università di Torino, Ceris-CNR e Hermes

Abstract - In this paper we investigate the economic rationality of the bed downsizing process, characterising the hospital industry worldwide in the last decades, as a measure to control public health care expenditure. Considering a sample of Italian hospitals, we provide fresh evidence on the factor substitutability in the production of hospital services. Differently from other studies, based on North-American data and confined to pre-determined cost function models, we estimate a general specification (the Generalised Composite), and test it against traditional nested models (e.g., the translog). For all the specifications we derive Allen, Morishima and Shadow elasticities of substitution between input pairs, obtaining a fairly consistent picture across all models and elasticity concepts. In particular, our results highlight a very limited degree of substitutability between factors in the production of hospital services, especially between beds and medical staff. These findings suggest that a restructuring policy of the hospital industry, which is confined to limiting the number of beds without involving workforce management, could not be a viable strategy for controlling public health care expenditure.