we set out a simple model of managerial effort and administrative costs.
We use the model to examine the welfare implications of endogenous managerial
effort and the estimation of efficiency in health care by standard econometric.
methods Schmidt and Sickles, 1984 . The paper complements and extends the
debate in the Symposium on Frontier Estimation in the Journal of Health
Economics which focused on alternative methods for estimating efficiency, rather
than on the welfare interpretation of the estimates.