Date of this Version
American Economic Journal: Economic Policy
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.
Copyright © 2016 AEA
Cutler, D. M., Huckman, R. S., & Kolstad, J. T. (2010). Input Constraints and the Efficiency of Entry: Lessons From Cardiac Surgery. American Economic Journal: Economic Policy, 2 (1), 51-76. http://dx.doi.org/10.1257/pol.2.1.51
Date Posted: 27 November 2017
This document has been peer reviewed.