An economic model of mental hospitals

The aim of the paper is to study the composition of intermediate products supplied by non profit institutions. In case the institution is financed according to part of the intermediate products supplied by it, we expect it to choose distorted composition of production factors. We studied Israeli mental hospitals. The aim of mental hospitals is to maximize the probability of curing but it produces both medication and maintenance. We measured the output by the number of patients discharged back home and assumed Cobb-Douglas production function. Data were collected for fifteen hospitals seventeen years back. Hospitals are financed according to the bed days they supply. The econometric study shows that while the marginal product of medical factors: doctors, nurses and medicines are significantly positive, the marginal product of the factors used for maintenance: capital and food, are significantly negative.