Hospital cost flexibility in the presence of many outputs: a public-private comparison

This paper develops flexibility measures in the context of a multi-firm output based on a generalized average cost function. We then apply this methodology to assess and compare the relative flexibility of hospital services in Québec and California based on two very complete data sets. Results indicate that there is no clear distinction between private and public institutions and that there is no clear distinction between Québec and California hospitals. However, there are clear differences in flexibility among different outputs. This last result suggests that there are bottlenecks in the health care system and calls for a targeted approach on the part of hospital administrators, whether public or private, in Québec or California.