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

  • Richard G. Frank
  • David S. Salkever

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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2753.

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Date of creation: Oct 1988
Date of revision:
Publication status: published as "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).
Handle: RePEc:nbr:nberwo:2753
Note: HE
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  1. Douglas, George W & Miller, James C, III, 1974. "Quality Competition, Industry Equilibrium, and Efficiency in the Price-Constrained Airline Market," American Economic Review, American Economic Association, vol. 64(4), pages 657-69, September.
  2. Pauly, Mark V, 1987. "Nonprofit Firms in Medical Markets," American Economic Review, American Economic Association, vol. 77(2), pages 257-62, May.
  3. Newhouse, Joseph P, 1970. "Toward a Theory of Nonprofit Institutions: An Economic Model of a Hospital," American Economic Review, American Economic Association, vol. 60(1), pages 64-74, March.
  4. Danzon, Patricia Munch, 1982. "Hospital `profits' : The effects of reimbursement policies," Journal of Health Economics, Elsevier, vol. 1(1), pages 29-52, May.
  5. Warr, Peter G., 1982. "Pareto optimal redistribution and private charity," Journal of Public Economics, Elsevier, vol. 19(1), pages 131-138, October.
  6. Feldstein, Martin S, 1971. "Hospital Cost Inflation: A Study of Nonprofit Price Dynamics," American Economic Review, American Economic Association, vol. 61(5), pages 853-72, December.
  7. Staten, Michael & Dunkelberg, William & Umbeck, John, 1987. "Market share and the illusion of power : Can blue cross force hospitals to discount?," Journal of Health Economics, Elsevier, vol. 6(1), pages 43-58, March.
  8. Roberts, Russell D, 1984. "A Positive Model of Private Charity and Public Transfers," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 136-48, February.
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