What Do Nonprofit Hospitals Maximize? Medical Service Provision and Market Ownership Mix
Jill R. Horwitz
UCLA School of Law; National Bureau of Economic Research (NBER)
The Urban Institute
June 1, 2008
U of Michigan Law & Economics, Olin Working Paper No. 07-014
NBER Working Paper No. 13246
Conflicting theories of the nonprofit firm have existed for several decades yet empirical research has not resolved these debates, partly because the theories are not easily testable but also because empirical research generally considers organizations in isolation rather than in markets. Here we examine three types of hospitals - nonprofit, for-profit, and government - and their spillover effects. We look at the effect of for-profit ownership share within markets in two ways, on the provision of medical services and on operating margins at the three types of hospitals. We find that nonprofit hospitals' medical service provision systematically varies by market mix. We find no significant effect of for-profit market share on the operating margins of nonprofit hospitals. These results fit best with theories in which hospitals maximize their own output.
Keywords: medical service provision, nonprofit firm
JEL Classification: I1, L1, L3, L22, H1working papers series
Date posted: August 1, 2007 ; Last revised: June 25, 2008
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