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Ownership Form and Trapped Capital in the Hospital Industry


Henry Hansmann


Yale Law School; European Corporate Governance Institute (ECGI)

Daniel P. Kessler


Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Mark B. McClellan


Brookings Institution; Council of Economic Advisors; National Bureau of Economic Research (NBER)

May 2002

Yale Law & Economics Research Paper No. 266

Abstract:     
Over the past 20 years, demand for acute care hospital services has declined more rapidly than has hospital capacity. This paper investigates the extent to which the preponderance of the nonprofit form in this industry might account for this phenomenon. We test whether rates of exit from the hospital industry differ significantly across the different forms of ownership, and especially whether secular nonprofit hospitals reduce capacity more slowly than do other types of hospitals. We estimate the effect of population changes (a proxy for changes in demand) at the zip-code level between 1985 and 1994 on changes in the capacity of for-profit, secular nonprofit, religious nonprofit, and public hospitals over the same period, holding constant metropolitan statistical area (MSA) fixed effects and other 1985 baseline characteristics of residential zip codes. We find that for-profit hospitals are the most responsive to reductions in demand, followed in turn by public and religiously affiliated nonprofit hospitals, while secular nonprofits are distinctly the least responsive of the four ownership types.

Number of Pages in PDF File: 40

Keywords: nonprofit, hospitals, exit, capacity, capital, ownership, supply response

JEL Classification: G32, I11, L30

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Date posted: December 4, 2002  

Suggested Citation

Hansmann, Henry and Kessler, Daniel P. and McClellan, Mark B., Ownership Form and Trapped Capital in the Hospital Industry (May 2002). Yale Law & Economics Research Paper No. 266. Available at SSRN: http://ssrn.com/abstract=313827 or http://dx.doi.org/10.2139/ssrn.313827

Contact Information

Henry Hansmann (Contact Author)
Yale Law School ( email )
P.O. Box 208215
New Haven, CT 06520-8215
United States
203-432-4966 (Phone)
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Daniel Philip Kessler
Stanford Graduate School of Business ( email )
518 Memorial Way
Stanford, CA 94305-5015
United States
650-723-4492 (Phone)
650-725-6152 (Fax)

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Mark B. McClellan
Brookings Institution ( email )
1775 Massachusetts Ave., NW
Washington, DC 20036
United States
Council of Economic Advisors ( email )
Eisenhower Executive Office Building
17th and Pennsylvania Avenue, NW
Washington, DC 20502
United States
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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