Altruism, Rivalry and Crowding-Out in the Nonprofit Firm's Supply of Charity Services: The Case of Hospitals

Richard G. Frank, David S. Salkever

NBER Working Paper No. 2753 (Also Reprint No. r1665)
Issued in October 1988
NBER Program(s):Health Economics

This paper extends previous research on Individuals' supply of charitable donations to the behavior of nonprofit firms. Specifically, we study provision of charity care by private, nonprofit hospitals. We demonstrate that In the absence of large positive income effects on charity care supply, convex preferences for the nonprofit hospital imply crowding out by other private or government hospitals. Extending our model to include patient heterogeneity and impure altruism (rivalry) provides a possible explanation for the previously reported empirical result that both crowding out and income effects on indigent care supply are often weak or insignificant. Empirical analysis of data for hospitals in Maryland provides strong evidence of rivalry on the supply of outpatient plus inpatient charity care, but not when the analysis is confined to inpatient care.

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Document Object Identifier (DOI): 10.3386/w2753

Published: "The Supply of Charity Services by Nonprofit Hospitals: Motives and Market Structure." From Rand Journal of Economics, Vol. 22, No. 3, pp. 430-445, ( Autumn 1991).

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