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American Economic Journal: Economic Policy: Vol. 2 No. 1 (February 2010)

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Input Constraints and the Efficiency of Entry: Lessons from Cardiac Surgery

Article Citation

Cutler, David M., Robert S. Huckman, and Jonathan T. Kolstad. 2010. "Input Constraints and the Efficiency of Entry: Lessons from Cardiac Surgery." American Economic Journal: Economic Policy, 2(1): 51-76.

DOI: 10.1257/pol.2.1.51

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. (JEL I11, L13)

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Authors

Cutler, David M. (Littauer Center, Harvard U)
Huckman, Robert S. (Harvard U)
Kolstad, Jonathan T. (U PA)

JEL Classifications

I11: Analysis of Health Care Markets
L13: Oligopoly and Other Imperfect Markets

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