 | ISTR Sixth International Conference Toronto, Canada / July 11-14, 2004 Contesting Citizenship and Civil Society in a Divided World |
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Ownership structure, economic efficiency and quality of service: Evidence from the nursing homes industry
by
Yehudit Givon
department of Economics, Ben-Gurion University
Coauthors: Israel Luski
The purpose of this paper is, first, to present a general theoretical model of a non- profit organization, in which the differences between non-profit and for-profit firms are emphasized. In the second part, we empirically investigate the nursing homes industry in order to validate the theoretical model.
The basic theory for the behavior of non-profit organizations derives from James and Rose-Ackerman (1986). The theory is based on the assumption that the goal of non-profit organizations is maximization of output. Their model does not consider the possibility of quality differentiations which can play a key role in the case of non-profit organizations.
In contrast, Arrow (1963) contended that non-profit organizations should play a role in providing services when there is quality differentiation and incomplete information, as under these circumstances these organizations have an advantage over for-profit firms. Various works consider some aspects of quality differentiation in the case of non-profit firms, for example, Hirth (1999), Rose-Ackerman (1996), Young (1983), Ford and Kaserman (2000), among others. Each of those papers tackles some aspect of quality differentiation, but none presents a complete model for an industry with quality differentiation and incomplete information.
In this paper we suggests a theory for the behavior of non-profit firms in the case of quality differentiation, and investigate the properties of equilibrium in an industry which consists of both for-profit and non-profit firms. Our key assumption is that non-profit organizations act in favor of the public. Technically, we assume that a non-profit organization maximizes the consumers' surplus.
In the second part of the paper the theory is statistically tested by using a data set of the nursing homes industry in Israel. This industry is a good case in point as the services it provides is of varying quality, there is incomplete information on the actual quality of each firm, and the services are provided by for-profit as well as non-profit firms. The data base consists of information on quality indices and information on various variables such as costs, size, mixture of clients, etc.
References: Aaronson, W.E., J.S. Zinn, and M.D. Rosko, 1994. Do for-profit and not-for-profit nursing homes behave differently? Gerontologist 34, 775-786.
Arrow, K.J., 1963. Uncertainty and the welfare economics of medical care, American Economic Review 53, 941-973.
Cohen, J.W., and W.D. Spector, 1996. The effect of medicaid reimbursement on quality of care in nursing homes, Journal of Health Economics 15, 23-48.
Davis, M., 1991. On nursing home quality: A review and analysis, Medical Care Review 48, 129-166.
Ford, J. M., and D. L. Kaserman, 2000, Ownership structure and the quality of medical care: evidence from the dialysis industry, Journal of Economic Behavior and Organization (43)3, 279-293.
Hawes, C., and C.D. Phillips, 1986. The changing structure of the nursing home industry and the impact of ownership on quality, cost, and access, In: Gray, B.H. (Ed.), For-profits Enterprise in Health Care, Washington, DC: National Academy Press, Washington, DC, 492-541.
Hirth, R.A., 1999. Consumer information and competition between nonprofit and for profit nursing homes, Journal of Health Economics 18, 219-240.
James, E., and S. Rose-Ackerman, 1986. The nonprofit enterprise in market economies, Harwood Academic Press, Chur, Switzerland.
Rose-Ackerman, S., 1996. Altruism, nonprofits, and economic theory, Journal of Economic Literature 34, 701-728.
Young, D., 1983. If not for profit, for what? D.C. Heath & Co., Lexington, Mass.
Date received: September 24, 2003
Copyright © 2003 by the author(s). The author(s) of this document and the organizers of the conference have granted their consent to include this abstract in Atlas Conferences Inc. Document # call-86.