Working Paper: NBER ID: w15214
Authors: David M. Cutler; Robert S. Huckman; Jonathan T. Kolstad
Abstract: Prior studies suggest that, with elastically supplied inputs, free entry may lead to an inefficiently high number of firms in equilibrium. Under input scarcity, however, the welfare loss from free entry is reduced. Further, free entry may increase use of high-quality inputs, as oligopolistic firms underuse these inputs when entry is constrained. We assess these predictions by examining how the 1996 repeal of certificate-of-need (CON) legislation in Pennsylvania affected the market for cardiac surgery in the state. We show that entry led to a redistribution of surgeries to higher-quality surgeons and that this entry was approximately welfare neutral.
Keywords: cardiac surgery; entry regulation; healthcare quality; competition
JEL Codes: I10; I11; I18; L1; L15; L23; L5; L8
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Repeal of CON regulations (L51) | Increase in the number of hospitals offering CABG surgery (I11) |
| Increase in the number of hospitals offering CABG surgery (I11) | Shift in surgical volume from lower-quality to higher-quality surgeons (I11) |
| Entry of new hospitals (I11) | Redistribution of surgeries among existing providers (D39) |
| Entry of new hospitals (I11) | Increased market share of high-quality surgeons (I11) |
| Entry of new hospitals (I11) | No increase in overall CABG utilization (F69) |
| Fixed costs of entry (L11) | Welfare-neutral outcome (D69) |