Journal Article | American Economic Journal: Economic Policy | February 2010

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

by David M. Cutler, Robert S. Huckman and Jonathan T. Kolstad

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.

Keywords: Government Legislation; Health Care and Treatment; Medical Specialties; Market Entry and Exit; Welfare or Wellbeing; Health Industry; Pennsylvania;

Citation:

Cutler, David M., Robert S. Huckman, and Jonathan T. Kolstad. "Input Constraints and the Efficiency of Entry: Lessons from Cardiac Surgery." American Economic Journal: Economic Policy 2, no. 1 (February 2010): 51–76.