Accessible Unlicensed Requires Authentication Published by De Gruyter January 11, 2019

The Impact of Secondary Environmental Variables on OECD Healthcare Efficiency: A Robust Conditional Approach

Richard Gearhart


In this paper, I estimate country-level efficiency using a newer order-m estimator where I condition efficiency estimates on secondary environmental variables. This allows me to identify which variables influence the effectiveness of a healthcare delivery system. I find that not controlling for secondary environmental variables leads to the average OECD country being 11% inefficient; after controlling for demographics and economic (social protection) environmental variables, inefficiency reduces to 7% (5%). This provides evidence that a substantial part of the inefficiencies of a healthcare system is related to demographics, socioeconomics, and the structure of the healthcare delivery system. Using the second-stage results, I find lower healthcare spending, both as a percent of GDP and total out-of-pocket, as well as more of the population covered by public health insurance, is related to better efficiency. Lower fertility rates, lower immigration rates, higher incomes, and lower pharmaceutical doses are also consistent with better healthcare efficiency. Lastly, a healthcare system that provides a basic benefits package but allows for purchase of private health insurance, with moderate gatekeeping and flexibility to increase the budget for healthcare through public and private financing, are the most efficient healthcare systems.

JEL Classification: C14; I11; I12; I18


Afonso, A, and M St Aubyn. 2011. “Assessing Health Efficiency across Countries with a Two Step and Bootstrap Analysis.” Applied Economics Letters 18: 1427–30.10.1080/13504851.2010.541149 Search in Google Scholar

Antecol, H, and K Bedard. 2006. “Unhealthy Assimilation: Why Do Immigrants Converge to American Health Status Levels?.” Demography 43 (2): 337–60.10.1353/dem.2006.0011 Search in Google Scholar

Bădin, L, C Daraio, and L Simar. 2010. “Optimal Bandwidth Selection for Conditional Efficiency Measures: A Data-Driven Approach.” European Journal of Operational Research 201: 633–40.10.1016/j.ejor.2009.03.038 Search in Google Scholar

Badin, L, C Daraio, and L Simar. 2012. “How to measure the impact of environmental factors in a nonparametric production model.” European Journal of Operational Research 223 (3): 818–33.10.1016/j.ejor.2012.06.028 Search in Google Scholar

Banks, J, M Marmot, Z Oldfield, and JP Smith. 2006. “Disease and Disadvantage in the U.S. and in England.” JAMA: the Journal of the American Medical Association 295 (17): 2037–45.10.1001/jama.295.17.2037 Search in Google Scholar

Berk, M, and A Monheit. 2001. “The Concentration of Health Care Expenditures, Revisited.” Health Affairs 20 (2): 9–18.10.1377/hlthaff.20.2.9 Search in Google Scholar

Cazals, C, J-P Florens, and L Simar. 2002. “Nonparametric Frontier Estimation: A Robust Approach.” Journal of Econometrics 106: 1–25.10.1016/S0304-4076(01)00080-X Search in Google Scholar

Danzon, P, and M Furukawa. 2008. “International Prices and Availability of Pharmaceuticals in 2005.” Health Affairs 27 (1): 221–33.10.1377/hlthaff.27.1.221 Search in Google Scholar

Daraio, C, and L Simar. 2005. “Introducing Environmental Variables in Nonparametric Frontier Models: A Probabilistic Approach.” Journal of Productivity Analysis 24: 93–121.10.1007/s11123-005-3042-8 Search in Google Scholar

Daraio, C, and L Simar. 2007a. Advanced Robust and Nonparametric Methods in Efficiency Analysis. New York: Springer Science+Business Media, LLC. Search in Google Scholar

Daraio, C, and L Simar. 2007b. “Conditional Nonparametric Frontier Models for Convex and Nonconvex Technologies: A Unifying Approach.” Journal of Productivity Analysis 28: 13–32.10.1007/s11123-007-0049-3 Search in Google Scholar

Daraio, C, L Simar, and PW Wilson. 2018. “Nonparametric Estimation of Efficiency in the Presence of Environmental Variables.” Econometrics Journal 21: 170–91. Search in Google Scholar

De Cos, PH, and E Moral-Benito. 2014. “Determinants of Health-System Efficiency: Evidence from OECD Countries.” International Journal of Healthcare Finance and Economics 14: 69–93.10.1007/s10754-013-9140-7 Search in Google Scholar

De Witte, K, and M Kortelainen. 2013. “What Explains the Performance of Students in a Heterogeneous Environment? Conditional Efficiency Estimation with Continuous and Discrete Variables.” Applied Economics 45 (17): 2401–12.10.1080/00036846.2012.665602 Search in Google Scholar

Dor, A, and W Encinosa. 2004. “Does Cost Sharing Affect Compliance? The Case of Prescription Drugs”. NBER Working Paper 10738. Search in Google Scholar

Dubard, CA, and MW Massing. 2007. “Trends in Emergency Medicaid Expenditures for Recent and Undocumented Immigrants.” JAMA: the Journal of the American Medical Association 297 (10): 1085–92.10.1001/jama.297.10.1085 Search in Google Scholar

Fisher, E, D Wennberg, T Stukel, D Gottlieb, FL Lucas, and E Pinder. 2003a. “The Implications of Regional Variations in Medicare Spending. Part 1: The Content, Quality, and Accessibility of Care.” Annals of Internal Medicine 138 (4): 273–87.10.7326/0003-4819-138-4-200302180-00006 Search in Google Scholar

Fisher, E, D Wennberg, T Stukel, D Gottlieb, FL Lucas, and E Pinder. 2003b. “The Implications of Regional Variations in Medicare Spending. Part 2: Health Outcomes and Satisfaction with Care.”.” Annals of Internal Medicine 138 (4): 288–98.10.7326/0003-4819-138-4-200302180-00007 Search in Google Scholar

Fried, H, CAK Lovell, and S Schmidt. 2008. The Measurement of Productive Efficiency and Productivity Growth. Oxford University Press: New York. Search in Google Scholar

Garber, A, and J Skinner. 2008. “Is American Health Care Uniquely Inefficient.” Journal of Economic Perspectives 22 (4): 27–50.10.1257/jep.22.4.27 Search in Google Scholar

Gaynor, M, J Li, and W Vogt. 2006. “Is Drug Coverage a Free Lunch? Cross-Price Elasticities and the Design of Prescription Drug Benefits”. NBER Working Paper 12758. Search in Google Scholar

Gearhart, R. 2016a. “The Robustness of Cross-Country Healthcare Rankings among Homogeneous OECD Countries.” Journal of Applied Economics 19 (1): 113–43.10.1016/S1514-0326(16)30005-8 Search in Google Scholar

Gearhart, R. 2016b. “No Theory: An Explanation of the Lack of Consistency in Cross-Country Health Care Comparisons Using Non-Parametric Estimators.” Health Economics Review 6: 40.10.1186/s13561-016-0118-2 Search in Google Scholar

Giuntella, O, and F Mazzonna. 2014. “Do Immigrants Bring Good Health” IZA Discussion Paper No. 8073. Online at Search in Google Scholar

Greene, W. 2004. “Distinguishing between Heterogeneity and Inefficiency: Stochastic Frontier Analysis of the World Health Organization’s Panel on National Health Care Systems.” Health Economics 13: 959–80.10.1002/hec.938 Search in Google Scholar

Hadad, S, Y Hadad, and T Simon-Tuval. 2013. “Determinants of Healthcare System’s Efficiency in OECD Countries.” The European Journal of Health Economics 14 (2): 253–65.10.1007/s10198-011-0366-3 Search in Google Scholar

Hall, RE, and CI Jones. 2007. “The Value of Life and the Rise in Health Spending.” The Quarterly Journal of Economics 122 (1): 39–72.10.1162/qjec.122.1.39 Search in Google Scholar

Hollingsworth, B. 2008. “The Measurement of Efficiency and Productivity of Health Care Delivery.” Health Economics 17: 1107–28.10.1002/hec.1391 Search in Google Scholar

Hurley, RE, DA Freund, and DE Taylor. 1989. “Emergency Room Use and Primary Care Case Management: Evidence from Four Medicaid Demonstration Programs.” American Journal of Public Health 79 (7): 843–46.10.2105/AJPH.79.7.843 Search in Google Scholar

Journard, I, C Andre, and C Nicq. 2010. “Health Care Systems: Efficiency and Institutions”. OECD Economics Working Paper 769. Search in Google Scholar

Kneip, A, B Park, and L Simar. 1998. “A Note on the Convergence of Non-Parametric DEA Efficiency Measures.” Econometric Theory 14: 783–93. Search in Google Scholar

Kneip, A, L Simar, and P Wilson. 2015. “When bias kills the variance: central limit theorems for DEA and FDH efficiency scores.” Econometric Theory 31 (2): 394–422.10.1017/S0266466614000413 Search in Google Scholar

Kumbhakar, S. 2010. “Efficiency and Productivity of World Health Systems: Where Does Your Country Stand?.” Applied Economics 42: 1641–59.10.1080/00036840701721588 Search in Google Scholar

Li, Q, and J Racine. 2007. Nonparametric Econometrics, Princeton University Press. Search in Google Scholar

Orrenius, PM, and M Zavodny. 2009. “Do Immigrants Work in Riskier Jobs.” Demography 46 (3): 535–51.10.1353/dem.0.0064 Search in Google Scholar

Paris, V, M Devaux, and L Wei. 2010. “Health Systems Institutional Characteristics: A Survey of 29 OECD Countries”. OECD health working papers no. 50, OECD, Paris. Search in Google Scholar

Perez-Carceles, MC, JC Gomez-Gallego, and M Gomez-Gallego. 2017. “Environmental Factors Affecting European and Central Asian Health-Systems’ Bias-Corrected Efficiency.” Applied Economics 50 (32): 1–29. Search in Google Scholar

Pritchett, L, and L Summers. 1996. “Wealthier Is Healthier.” The Journal of Human Resources 31 (4): 841–68.10.2307/146149 Search in Google Scholar

Puig-Junoy, J. 1998. “Measuring Health Production Performance in the OECD.” Applied Economics Letters 5: 255–59.10.1080/135048598354933 Search in Google Scholar

Simar, L, and PW Wilson. 1999. “Estimating and Bootstrapping Mamlquist Indices.” European Journal of Operational Research 115: 459–71.10.1016/S0377-2217(97)00450-5 Search in Google Scholar

Simar, L, and PW Wilson. 2007. “Estimation and Inference in Two-Stage, Semi-Parametric Models of Production Processes.” Journal of Econometrics 136: 31–64.10.1016/j.jeconom.2005.07.009 Search in Google Scholar

Simar, L, and PW Wilson. 2008. “Statistical Inference in Non-Parametric Frontier Models: Recent Developments and Perspectives.” In The Measurement of Productive Efficiency and Productivity Growth, edited by H.O. Fried, C.A.K. Lovell, and S.S. Schmidt, 421–521. Oxford University Press: Oxford. Search in Google Scholar

Simar, L, and PW Wilson. 2011. “Two-Stage DEA: Caveat Emptor.” Journal of Productivity Analysis 36: 205–18.10.1007/s11123-011-0230-6 Search in Google Scholar

Skinner, J, E Fisher, and J Wennberg. 2005. “The Efficiency of Medicare.” In Analyses in the Economics of Aging, edited by D. Wise, 129–57.University of Chicago Press and NBER: Chicago. Search in Google Scholar

Spinks, J, and B Hollingsworth. 2009. “Cross-Country Comparisons of Technical Efficiency of Health Production: A Demonstration of Pitfalls.” Applied Economics 41: 417–27.10.1080/00036840701604354 Search in Google Scholar

Starfield, B, L Shi, and J Macinko. 2005. “Contributions of Primary Care to Health Systems and Health.” The Milbank Quarterly 83 (3): 457–502.10.1111/j.1468-0009.2005.00409.x Search in Google Scholar

Varabyova, Y, and JM Muller. 2016. “The Efficiency of Health Care Production in OECD Countries: A Systematic Review and Meta-Analysis of Cross-Country Comparisons.” Health Policy 120: 252–63.10.1016/j.healthpol.2015.12.005 Search in Google Scholar

Wheelock, D, and PW Wilson. 1999. “Technical Progress, Inefficiency, and Productivity Changes in US Banking, 1984-93.” Journal of Money, Credit, and Banking 31: 212–34. Search in Google Scholar

Wheelock, D, and PW Wilson. 2008. “Non-Parametric, Unconditional Quantile Estimation for Efficiency Analysis with an Application to Federal Reserve Check Processing Operations.” Journal of Econometrics 145: 209–25.10.1016/j.jeconom.2008.05.007 Search in Google Scholar

Wheelock, D, and PW Wilson. 2009. “Robust Non-Parametric Quantile Estimation of Efficiency and Productivity Changes in U.S. Commercial Banking, 1985-2004.” Journal of Business and Economic Statistics 27: 354–68.10.1198/jbes.2009.06145 Search in Google Scholar

Wilson, PW. 2011. “Asymptotic Properties of Some Non-Parametric Hyperbolic Efficiency Estimators.” In Exploring Research Frontiers in Contemporary Statistics and Econometrics, edited by I. Van Keilegom, and P.W. Wilson, 115–50. Berling: Springer-Vestag. Search in Google Scholar

Wranik, D. 2012. “Healthcare Policy Tools as Determinants of Health-System Efficiency: Evidence from the OECD.” Health Economics, Policy, and Law 7: 197–226.10.1017/S1744133111000211 Search in Google Scholar

Published Online: 2019-01-11

© 2019 Walter de Gruyter GmbH, Berlin/Boston