Working Paper: NBER ID: w31569
Authors: Amitabh Chandra; Carrie H. Colla; Jonathan S. Skinner
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 – the underuse of effective inputs and overuse of ineffective ones. Misallocation implies that conditional on total input use, the return to using a particular input is not zero (a positive return implies underuse, and a negative return implies overuse). We measure misallocation across hospitals, where inputs and outputs are better measured than in other industries. Applying our test to a sample of 1.6 million Medicare beneficiaries with heart attacks (of which 436 thousand were admitted by ambulance), we reject the hypothesis of productive efficiency; moving a patient from a 10th percentile to a 90th percentile hospital with respect to misallocation, holding spending constant, is predicted to increase survival by 3.1 percentage points. With misallocation accounting for as much as 25 percent of the variation in hospital productivity, our results suggest that how the money is spent, rather than how much money is spent, is central to understanding productivity differences both in health care, and in the rest of the economy.
Keywords: productivity; input misallocation; healthcare; hospitals; Medicare
JEL Codes: E23; I1; I10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| input misallocation (D61) | hospital productivity (D24) |
| moving a patient from a hospital at the 10th percentile of misallocation to one at the 90th percentile (I14) | survival rates (C41) |
| greater use of effective treatments (category I) (I12) | higher measured productivity (O49) |
| reduced use of ineffective treatments (category III) (I12) | higher measured productivity (O49) |
| misallocation (D61) | variations in hospital productivity (D24) |
| higher expenditures (H51) | better outcomes (I14) |