Health Care Management Science

, Volume 13, Issue 1, pp 84–100 | Cite as

The impact of CON regulation on hospital efficiency

  • Gary D. Ferrier
  • Hervé Leleu
  • Vivian G. Valdmanis


In this paper we propose an empirically implementable measure of aggregate-level efficiency along the lines of Debreu’s (1951) coefficient of resource utilization but restricted to the production side. The efficiency measure is based on directional distance functions, which allows the overall measure of efficiency to be decomposed into measures of technical and “structural” efficiency. The latter measure, which captures inefficiencies associated with the organization of production within an industry, is further decomposed into measures of scale and mix efficiency. The measures developed in the paper are illustrated using U.S. hospital data. The illustration sheds light on the efficacy of certificate of need (CON) regulations.


Hospital efficiency Certificate of need Directional distance function Structural efficiency 



We wish to thank Professor Jan Clement (Department of Health Administration, Virginia Commonwealth University) for supplying the case mix indices for the hospitals in this paper and to the editor of the journal and anonymous referees for their suggestions that improved this paper.


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Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  • Gary D. Ferrier
    • 1
  • Hervé Leleu
    • 2
  • Vivian G. Valdmanis
    • 3
  1. 1.Department of EconomicsUniversity of ArkansasFayettevilleUSA
  2. 2.CNRS-LEM and IÉSEG School of ManagementCatholic University of LilleLilleFrance
  3. 3.Department of Health Policy and Public HealthUniversity of the Sciences in PhiladelphiaPhiladelphiaUSA

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