The structure of costs and production in New Zealand public hospitals: An application of the transcendental logarithmic variable cost function

Abstract

New Zealand's public hospitals provide 'free' secondary health care to the public through taxation funding. Since these hospitals vary by both size and range of services provided, the possibility of more productive resource use is of explicit interest. A translog variable cost function is estimated for New Zealand public hospitals using 1987 cross-section data. An analysis of the function reveals the marginal costs, short-run and long-run economies of scale and input factor substitution possibilities. Results suggest that a transfer of both patients with less severe conditions and staff from teaching hospitals to say, country hospitals will result in a short-run decreased total cost to the s..