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A system of consumer expenditure functions is estimated from Norwegian household budget data. Specific features o f our approach are: (i) Panel data on individual households are used, which offer far richer o p p o r t u n i t i e s f o r i d e n t i f i c a t i o n , e s t i m a t i o n a n d t e s t i n g t h a n u s u a l c r o s s s e c t i o n data. (ii) Measurement errors are carefully modelled. Total consumption expenditure is modelled as a latent variable, purchase expenditures on different goods and two income measures are used as indicators of this basic latent variable. (iii) The distribution of latent total expenditure across households, and its evolution over time, is estimated and important properties tested. (iv) Individual differences in preferences, represented by individual, time invariant latent variables, are modelled, identified, estimated, and tested. (v) We test the hypothesis that preferences are uncorrelated with total consumption expenditure, which is basic to all cross section estimation of consumer demand functions. (vi) The model can be formalized as a special case of the LISREL model, and the maximum likelihood algorithm of the computer program LISREL VI is applied. 1 Paper presented at the Econometric Society European Meeting, Bologna, August 29-September 2, 1988. This research has been financed in part by NORAS (project no. 214 1 802). Liv Daasvatn has given valuable programming assistance in the preparation of the data.

For policy-makers the heterogeneity of hospital response to reforms is of crucial concern. Even though a reform may entail a positive effect on average efficiency, policy-makers will consider the reform as less attractive if the variation in hospital efficiency increases. The reason is that increased variance of efficiency across hospitals is likely to increase the impact of geography on access to hospital services. This paper examines the heterogeneity with respect to the impact of a financial reform-Activity Based Financing (ABF)-on hospital efficiency in Norway. From a theoretical model we find an ambiguous effect of hospital heterogeneity on the effect of ABF on efficiency. The data set is from a contiguous 10-year panel of 47 hospitals covering both pre-ABF years and years after its imposition. Substantial heterogeneity in the responses, as measured by both estimated and predicted coefficients, is found. We did not find any significant correlation between pre-ABF measures of efficiency and the effect of ABF on efficiency. We did however find a strongly significant correlation between the effect of ABF and post-ABF efficiency. Thus, the analysis confirms the impression that, whereas pre-ABF efficiency did not play any role in how hospitals responded to ABF, those responding generally ended up as better-performing hospitals. Hence, for the type of reform studied in this article we find that policy-makers do not need to worry about the impact of location on patients' access to hospital services.

Activity-based financing (ABF) was implemented in the Norwegian hospital sector from 1 July 1997. A fraction of the block grant from the state to the county councils has been replaced by a matching grant depending upon the number and composition of hospital treatments. As a result of the reform, the majority of county councils have introduced activity-based contracts with their hospitals. This paper studies the effect of activity-based funding on hospital efficiency. We predict that hospital efficiency will increase because the benefit from cost-reducing efforts in terms of number of treated patients is increased under ABF as compared with global budgets. The prediction is tested using a panel data set from the period 1992-2000. Efficiency indicators are estimated by means of data envelopment analysis (DEA) with multiple inputs and outputs. Using a variety of econometric methods, we find that the introduction of ABF has improved efficiency when measured as technical efficiency according to DEA analysis. The result is less uniform with respect to the effect on cost-efficiency.

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