A system-of-equations two-stage DEA approach for explaining capacity utilization and technical efficiency

In this paper we develop a system-of-equations two-stage approach to explain the simultaneous effect of a number of contextual variables on technical efficiency and capacity utilization, which were derived using Johansen measure of capacity utilization and DEA. The model is applied to a sample of public hospitals in Greece and provides estimates of capacity utilization and optimal input usage. Our results indicate that the sample hospitals operated with excess capacity and by underutilizing doctors and nursing personnel. We also found some variation in capacity and variable input utilization across urban and non-urban hospitals. The results from the second stage SUR system of equations show that hospital size and location have a positive effect on hospital capacity utilization while the average length of stay a negative one.