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Medical Care Output and Productivity in the Nonprofit Sector

Medical Care Output and Productivity in the Nonprofit Sector

Chapter:
(p.119) 3 Medical Care Output and Productivity in the Nonprofit Sector
Source:
Medical Care Output and Productivity
Author(s):
Tomas PhilipsonDarius Lakdawalla
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226132303.003.0004

Health care differs from many other industries in that most production takes place in the nonprofit sector. Little is known about the economic forces which determine productivity in the nonprofit sector, especially compared to that which is known about the for-profit sector. There, productivity analysis is well developed, especially through recent work stressing the endogenous determination of technical change. This chapter analyzes the incentives which generate productivity differences between nonprofit and for-profit firms, focusing on some empirical differences between nonprofits and for-profits in mixed industries. It predicts that, when both types coexist, nonprofits are larger and less efficient, but nevertheless become more numerous than for-profit firms under competitive conditions. In other words, nonprofits drive out for-profit firms through competition, although they exhibit higher marginal and average costs. Another prediction is that, contrary to property rights theory, nonprofits invest more in cost-reducing research and development than for-profits, holding other factors, such as third-party insurance contracts, constant. The chapter also discusses some broad patterns in the productivity differences between nonprofits and for-profits in the long-term care industry in the United States.

Keywords:   nonprofit sector, for-profit sector, productivity, long-term care, United States, mixed industries, property rights, health care, research and development, incentives

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