Investment generation process in hospital facilities: the response of supply to capacity utilization measures

Hospital investment behavior is commonly explained by means of either supply or demand factors. The inherent limitations of these models have led to ambiguous conclusions. This study applies a different approach, whereby investment generation is explained by means of a stock adjustment model. The model is empirically tested on a sample of New York City hospitals. Relative investment is found to be directly related to occupancy rate, indicating rationality in the hospital investment process. Scalar factors are also shown to be significant, implying the concept of preferred hospital size.