NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

What Do Nonprofits Maximize? Nonprofit Hospital Service Provision and Market Ownership Mix

Jill R. Horwitz, Austin Nichols

NBER Working Paper No. 13246
Issued in July 2007
NBER Program(s):   HC   IO

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.

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This paper was revised on June 20, 2008

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Document Object Identifier (DOI): 10.3386/w13246

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