In this section we set out a simple model of the determinants of administrative costs. Although the setting is English primary care, our modelling of efficiency is relevant for other health care systems. We suppose that endogenous managerial effort affects administrative cost, so that what is usually measured as exogenous
inefficiency is endogenous. This has implications both for the welfare interpretation of the empirical results and for the estimation of the administrative cost . function. Our approach is similar to Gaynor and Pauly 1990 but in a different institutional setting with different property rights