Certificate-of-Need Regulation and the Diffusion of Innovations: A Random Coefficient Model.

In this paper, we examine empirically the effect that certificate-of-need regulation by state health planning organizations has had on the speed of diffusion of a relatively new medical technology-haemodialysis. Specifically, we test the hypothesis that a requirement that investments be subject to certificate-of-need review has significantly slowed the rate of adoption of this particular treatment modality. In subjecting this hypothesis to empirical verification, we estimate a random coefficient model. This approach allows us to make more efficient use of the available data than the traditional two-stage approach to modeling diffusion processes wherein separate logistic functions are first estimated over the time series observations followed by hypothesis tests conducted over the cross-sectional observations. We find evidence that certificate-of-need regulation slows the spread of haemodialysis technology. Copyright 1995 by John Wiley & Sons, Ltd.