Wolves in Sheep's Clothing: Is Non-Profit Status Used to Signal Quality?

36 Pages Posted: 5 Apr 2018

See all articles by Daniel Jones

Daniel Jones

University of Pittsburgh - Graduate School of Public & International Affairs

Carol Propper

Imperial College London Business School; Centre for Economic Policy Research (CEPR); University of Bristol - Leverhulme Centre for Market and Public Organisation (CMPO)

Sarah Smith

University of Bristol; Institute for Fiscal Studies (IFS)

Date Written: April 1, 2016

Abstract

Why do firms adopt non-profit status? One argument is that non-profit status serves as a signal of quality when consumers are not well informed. A testable implication is that an increase in consumer information may lead to a reduction in the number of non-profits in a market. We test this idea empirically by exploiting an exogenous increase in consumer information in the US nursing home industry. Indeed, we find that the information shock led to a reduction in the share of non-profit homes in the market, driven by a combination of home closure and sector switching. The lowest quality non-profits were the most likely to exit. Our results have important implications for the effects of reforms to increase consumer provision in a number of public services.

Keywords: non-profit, nursing homes, quality disclosure

JEL Classification: I11, I18, L31

Suggested Citation

Jones, Daniel and Propper, Carol and Smith, Sarah, Wolves in Sheep's Clothing: Is Non-Profit Status Used to Signal Quality? (April 1, 2016). CEPR Discussion Paper No. DP11240. Available at SSRN: https://ssrn.com/abstract=2769856

Daniel Jones (Contact Author)

University of Pittsburgh - Graduate School of Public & International Affairs ( email )

Pittsburgh, PA 15260-0001
United States

HOME PAGE: http://danielbjones.weebly.com

Carol Propper

Imperial College London Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

University of Bristol - Leverhulme Centre for Market and Public Organisation (CMPO) ( email )

12 Priory Road
Bristol BS8 1TN
United Kingdom

HOME PAGE: http://www.bris.ac.uk/Depts/Economics/department/profiles/propper.htm

Sarah Smith

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

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