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How much confidence should we place in efficiency estimates?

Street, A. (2002) How much confidence should we place in efficiency estimates? Health Economics, 12 (11). pp. 895-907. ISSN 1057-9230

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Ordinary least squares (OLS) and stochastic frontier (SF) analyses are commonly used to estimate industry-level and firm-specific efficiency. Using cross-sectional data for English public hospitals, a total cost function based on a specification developed by the English Department of Health is estimated. Confidence intervals are calculated around the OLS residuals and around the inefficiency component of the SF residuals. Sensitivity analysis is conducted to assess whether conclusions about relative performance are robust to choices of error distribution, functional form and model specification. It is concluded that estimates of relative hospital efficiency are sensitive to estimation decisions and that little confidence can be placed in the point estimates for individual hospitals. The use of these techniques to set annual performance targets should be avoided.

Item Type: Article
Keywords: hospital efficiency • stochastic frontiers • confidence intervals
Institution: The University of York
Academic Units: The University of York > Centre for Health Economics (York)
Depositing User: York RAE Import
Date Deposited: 30 Jun 2009 16:09
Last Modified: 30 Jun 2009 16:09
Published Version: http://dx.doi.org/10.1002/hec.773
Status: Published
Publisher: John Wiley & Sons
Identification Number: 10.1002/hec.773
URI: http://eprints.whiterose.ac.uk/id/eprint/6281

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