Stochastic frontier analysis of hospital efficiency: does the model specification matter

Abstract

In this study, the technical efficiency of outpatient service production of hospitals is analyzed by using the Stochastic Frontier Analysis (SFA) with different model specifications. The purpose of the study is to present the effects of different SFA model specifications on the distribution of efficiency score and/or production function parameter estimates. In the analysis, the data of 429 Turkish MoH hospitals for the years 2012, 2013 and 2014 is used. The results of this paper suggest that different SFA specification, i.e. using Cobb-Douglas or Translog production technology and/or using an error component model or technical efficiency effects model, shifts the production function parameter estimates and the mean efficiency scores. On the other hand, the efficiency scores estimated by different model specifications are found to be highly correlated both in magnitude and rank order.