Natural resource abundance and healthcare efficiency in Appalachia: A robust conditional approach

Abstract This study investigates the role of natural resource abundance on healthcare efficiency in Appalachia. Unconditional efficiency measures are calculated from a production process where health inputs are turned into health outcomes. We utilize a non-parametric robust order- m estimator where we condition our efficiency measures on secondary environmental variables that do not directly impact health in a production process. Unlike the unconditional estimation procedure which impacts the shape of the production frontier, as well as the distance to the frontier, the secondary environmental variables alter the location of the production frontier, with corresponding effects on efficiency. We find that taking into account the relatively worse socioeconomic and healthcare conditions in Appalachia improves healthcare efficiency by 1.6- and 1.9-percentage points, respectively. The presence of natural resource extraction measured by oil, natural gas or coal production, worsens healthcare efficiency by 0.14-percentage points, another vehicle of the resource curse. Regressing the conditional efficiency estimates on secondary environmental variables shows that counties with natural resource production are further from the production frontier and therefore more inefficient. Findings suggest that policymakers can improve health efficiency by incentivizing positive health behaviors, such as reduced obesity and smoking rates, which would mimic health-improving inputs in a production process.