Description:

Jonathan Skinner (Dartmouth College): Productivity Variation and Input Misallocation: Evidence from Hospitals

Abstract: There are widespread differences in total factor productivity across producers in the U.S. and around the world. To help explain these variations, we devise a general test for misallocation in input choices and apply it to inpatient hospital care, where the underuse of effective inputs and overuse of ineffective ones has been well-documented and represents input misallocation. Applying our test to a sample of 1.6 million Medicare beneficiaries with heart attacks, we reject the hypothesis of efficient production; hospitals with lower levels of misallocation have higher one-year survival of 3.1 percentage points. Misallocation contributes to around 25 percent of overall variation in hospitals’ total hospital factor productivity.