Does Competition Increase Economic Efficiency in Swedish County Councils?



makes it important to revisit the question of how other producers affects economic efficiency
in Swedish local county councils.

The purpose of this paper is thus to study if local county councils who has a large proportion
of health care performed by alternative producers are more economically efficient than other
county councils. The analysis will be performed using the two step approach adopted by
Borden (1988), Bedard and Wen (1990) and Gerdtham et al (1999).

There are at least four ways that a larger proportion of health care performed by alternative
producers could increase economic efficiency in local county councils. First, for profit
maximizing alternative producers of health care the financial rewards of efficiency is more
directly connected to the employee and/or the owner of the alternative production plant,
making the personal incentives to create an efficient production plant greater.

Second, almost all health care supplied by alternative producers in Sweden is produced in
relatively small scale production units. Then, if there are diseconomies of scale in production
of health care, this could make county councils using a relatively large amount of such small
scale care more efficient. Third, there is an ongoing debate about so called X-inefficiency (i.e.
that production units with low exposure to competition do not minimize costs) in the public
sector. If this is the case, a relatively larger share of alternative producers of health care may
lead to increased efficiency, due to increased competition in health care production. Finally, if
alternative producers use a higher level of specialisation than the local county councils do,
this could lead to such units being more efficient. If, for example, alternative caregivers use
more administrative personnel than in the county councils own health care facilities, this
could result in higher efficiency if this makes it possible for physicians and nurses to focus on
working with patients.

This paper contributes to the literature in the following way; first, the large increase in the
amount of health care performed by others than the local county councils warrants that the
question of how this affects efficiency in the Swedish health care system should be revisited.
Second, increased data availability allows us to control for more confounding factors than
previous studies, making potential missing variable bias less likely.



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