Hospital Capital Investment: The Roles of Demand, Profits, and Physicians

After considering existing studies of hospital capital investment, this paper analyzes hospital investment with a model based on the assumption that hospitals are run to maximize the incomes of staff physicians. Optimal capital stock is shown to be related to physician income and hospital output. Analysis of a state-aggregate cross-section indicates that investment is a lagged response to output and physician income changes, while profits are not consistently an important determinant.