(DP 1995-09) Translog Variable Cost Function Estimates for Philippine Hospitals

Michael M. Alba

Abstract


This paper presents the parameter estimates of a translog variable cost function for 65 Philippine hospitals and discusses certain inferences that can be drawn from these estimates. It means to highlight three points: First, it shows how a translog cost function, which has many parameters, can be estimated with a relatively small regression sample (typical of hospital data sets in developing countries) by applying a system estimation method (FIML) on the cost function and its input demand equations. Second, using a specification that allows the intercepts of the cost function and the factor share equations to be different between private and public hospital, the paper finds that private hospitals are apparently not more technically efficient than public hospitals. Third, the optimal bed size (at which minimum effecient scale is achieved) is inferred to be about 80 beds-way below those in developed countries, perhaps because of the generally lower quality of hospitals in developing countries.

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