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Wolves in sheep’s clothing: Is non-profit status used to signal quality?

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  • Jones, Daniel B.
  • Propper, Carol
  • Smith, Sarah

Abstract

Why do many firms in the healthcare sector 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. We find that the information shock led to a reduction in the share of non-profit homes, 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.

Suggested Citation

  • Jones, Daniel B. & Propper, Carol & Smith, Sarah, 2017. "Wolves in sheep’s clothing: Is non-profit status used to signal quality?," Journal of Health Economics, Elsevier, vol. 55(C), pages 108-120.
    • Handle: RePEc:eee:jhecon:v:55:y:2017:i:c:p:108-120
    DOI: 10.1016/j.jhealeco.2017.06.011
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    Cited by:

    1. Sean Shenghsiu Huang & John R. Bowblis, 2018. "The principal–agent problem and owner‐managers: An instrumental variables application to nursing home quality," Health Economics, John Wiley & Sons, Ltd., vol. 27(11), pages 1653-1669, November.
    2. Levaggi, Laura & Levaggi, Rosella, 2023. "Competition in the provision of hospital care: Are mixed markets a valid alternative?," Economic Modelling, Elsevier, vol. 127(C).
    3. Johannes S. Kunz & Carol Propper & Kevin E. Staub & Rainer Winkelmann, 2023. "Assessing the Quality of Public Services: For-profits, Chains, and Concentration in the Hospital Market," Papers 2023-01, Centre for Health Economics, Monash University.
    4. Levaggi, Laura & Levaggi, Rosella, 2020. "Is there scope for mixed markets in the provision of hospital care?," Social Science & Medicine, Elsevier, vol. 247(C).

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    More about this item

    Keywords

    Non-profit; Quality disclosure; Nursing homes;
    All these keywords.

    JEL classification:

    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship
    • L38 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Policy
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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