Will the real elasticity of substitution ‘in Norwegian dentistry’ please stand up?

Abstract

The non-homothetic production cost structure in Norwegian private dentistry involves more than two factor inputs. Consequently, this paper implements-separately for solo and group practices -three conceptually different measures of factor substitutions to infer the precise nature of input associations using translog cost model estimates based on 1993 data. We calculate own-and cross-price elasticities of factor demands, pairwise elasticities of substitution and their approximate S.E.s. We find that: (1) dentists and dental assistants cannot be consistently aggregated as one homogeneous labour input; (2) input demands are inelastic; (3) the theoretically restricti6e Allen-Uzawa and the less restricti6e shadow and Morishima elasticities of substitution are not equivalent; (4) dentists and auxiliary dental personnel relate as significant substitutes in solo practices and as significant complements in group practices; (5) 'supplies' (e.g., dental materials) in the aggregate are substitutes for the two types of dentistry labour; and (6) there appears to be a wider scope for factor substitutions in group rather than solo practices. Due to inelastic factor demands, opportunities for cost controls are limited despite some tendencies for factor interchange. Finally, future researchers of production costs involving more than two inputs should investigate the less restrictive, alternative measures of factor substitutions.

Factor substitution in nursing homes

“…Factor substitution has been studied in hospitals (Jensen and Morrisey, 1986;Morrisey and Jensen, 1990), health maintenance organizations (Okunade, 2003), physician practices (Escarce and Pauly, 1998), hospital pharmacies (Okunade, 1993), dentist offices (Okunade, 1999), and for treatment of depression (Berndt et al, 1997). Two previous studies find evidence consistent with factor substitution in nursing homes.…”

Labor Prices and the Treatment of Nursing Home Residents with Dementia

“…In the health care area, economists have studied factor substitution in hospitals (Jensen and Morrisey, 1986;Morrisey and Jensen, 1990), health maintenance organizations (Okunade, 2003), physician practices (Escarce and Pauly, 1998), hospital pharmacies (Okunade, 1993), dentist offices (Okunade, 1999), and for the treatment of depression (Berndt et al, 1997). Several studies have also found evidence suggestive of factor substitution in nursing homes.…”

Production Cost Structure in Us Outpatient Physical Therapy Health Care

“…This level of significance is not unusual in well‐behaved production cost functions using GTL methodology (See, e.g. Ray (); Okunade (); Suraratdecha and Okunade ()) . The first‐order factor price coefficients are all positive and highly significant.…”

“…Okunade (), in a translog cost study of technological progress in US hospital pharmacies, show that although little research had been done on integration of information technology with regard to clinical and administrative systems in hospitals, it was clear that information technology could increase cost efficiency and spur gains in productivity. Finally, past‐related work, for example, Okunade () on Norwegian dentistry production cost structure issued a cautionary note for researchers on selecting the appropriate conceptual measure of an elasticity of substitution. Because physical therapists must be licensed and their assistants (support staff) may only perform certain tasks (professional regulations) under the supervising therapist, one operational policy of interest is assessing the degree of input responsiveness to exogenous factor wage changes in the labor market for different types of workers in physical therapy care.…”