Does Competition Increase Economic Efficiency in Swedish County Councils?



This paper is organized as follows; in the next section the data and methods used in this study
are presented. Section 3 reports the results from the estimations of economic efficiency and
the regression analysis used to explain the efficiency scores. Finally, in section 4 the results,
potential caveats, and directions for future research are discussed.

2. Material and Methods

As mentioned above, our analysis resembles that of Gerdtham et al (1999), Borden (1988) and
Bedard and Wen (1990). The analysis is performed in two steps; first, economic efficiency is
estimated using data envelopment analysis (DEA), and second, the efficiency scores are used
as the dependent variable in regression models trying to explain the efficiency score of
different production facilities or different county councils. In the field of productivity
analysis, productivity change is decomposed into technological development and technical
efficiency change. Therefore, given the available production technology, increasing technical
efficiency will be interpreted as increasing productivity in this paper. As in Gerdtham et al.
(1999), this paper will focus on technical efficiency, and from now on we use the term
economic efficiency as synonymous to technical efficiency. It should, however, be noted that
this means that we assume allocative efficiency, i.e., that prices are set efficiently on all
relevant markets (see Coelli, 1998, p.162). The method of analysis will be discussed in detail
below.

First, the economic efficiency in Swedish local county councils for the years 2001 to 2004 is
estimated. In order to do this, one must first chose if one should use an input- or output
oriented approach. An output oriented approach means that the aim of the study is to
investigate by how much output can be increased using a fix amount of inputs and
technology. An input oriented approach studies by how much inputs can be decreased using
the available production technology for a given level of output. The choice of approach
should be based on which side of the economic problem (inputs- or outputs) the decision
makers in the local county councils have more control over. Since Swedish local county
councils are bound by law to treat the sick, and the spread of disease in the community is
largely out of the hand of decision makers, we have adopted an input based approach. It is
thus assumed that decision makers in the local county councils can choose the input mix used
in the production of health care in the county council.



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