Under constant returns to scale, price-taking behavior and no external effects the general equilibrium allocation is efficient. Input-output analysis need not make these assumptions and has the capacity to measure the inefficiency of an observed economic allocation. The objective of a national economy is to fulfill domestic final demand. In this chapter the level of domestic final demand is maximized subject to material balance constraints on products and production factors. The gap between the maximum and the observed levels measures the inefficiency in the economy. The linear program that finds the frontier of the economy features complementary slackness: binding constraints are signaled by positive prices and non-binding constraints by zero prices. The frontier program is translated into a complementarity problem, which is easy to solve. The consequent efficiency is decomposed in trade efficiency, Leibenstein's X-efficiency and allocative efficiency. Moreover, Solow's total factor productivity growth measure is decomposed in technical change, efficiency change and a terms-of-trade effect. The analysis encompasses environmental policy analysis.
Peter Bogetoft, Misja Mikkers and Victoria Shestalova
In this chapter the authors describe an integrated contract (population based financing) between health care payers, such as governments and/or health insurers) and different health care providers. The chapter considers a simple and stylized theoretical model involving a health care payer and two different health care providers (e.g., general practitioners and hospitals) and compares different contracting options. Based on the theoretical model, the authors argue that population bases financing offers better incentives for the coordination in the provision of health care services. Contracts should be augmented with quality outcome measures to provide incentives to prevent undertreatment. The chapter gives examples of integrated contracting in the US, Germany and a proposed experiment in the Netherlands.