Nonprofit Production and Competition
National Bureau of Economic Research, 1998 - Nonprofit organizations - 44 pages
Industries in which private nonprofit production is present and significant, such as health care and education, account for more than one-fifth of US economic activity. This paper argues thatprevious analysis of nonprofits has not separated profit-deviating preferences from the state-defined regulatory status of nonprofit production. We argue that this separation is crucial in providing predictions about the underlying forces which allow the coexistence of nonprofit and for-profit production in an industry, as well as predictions about such fundamental matters as the share of nonprofit activity. By separating choice of nonprofit status from profit-deviating preferences, the paper provides predictions about the forces which determine the share of nonprofit production in an industry. We argue that this share falls with the share of the demand that is publicly subsidized, rises with the total number of firms in the industry, and rises with growth in the pace or extent of cost-reductions resulting from learning-by-doing. These predictions stem from a basic aspect of regulatory nonprofit choice which links the degree of competition in a market with the share of nonprofits: the availability of economic profits under for-profit status raises the cost of choosing nonprofit status when such a status is.
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altruistic firms analysis break-even curve capita beds Capita Income change in for-profit choose nonprofit status coefficient comparative statics competitive condition cost function differences Direct Care Expense distribution constraint donations economic profits economic rents equations equilibrium profits Expenses per Patient firm's For-Profit Facilities for-profit firms for-profit production for-profit sector for-profit shares for-profit status free entry given level higher implies learning-by-doing level of profit linearly interpolated long-run price long-term care industry lower marginal cost marginal rate maximizing Medicaid minimum average cost mixed production NBER Working Papers net-conversions non-distribution constraint nonprofit choice nonprofit firms nonprofit production nonprofit sector nonprofit shares number of firms optimal output preference patient day predictions profit status profit-deviating firm profit-deviating preferences profit-maximizing firms profits rise R-Squared rate of substitution regression relative rents available result shadow value share of for-profit share of nonprofit statewide steady-state switches to for-profit total costs total number value output zero