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Wolves in Sheep's Clothing: Is non-profit status used to signal quality?

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

Abstract

Why do firms 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. Indeed, we find that the information shock led to a reduction in the share of non-profit homes in the market, 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

  • Propper, Carol & Smith, Sarah & Jones, Daniel, 2016. "Wolves in Sheep's Clothing: Is non-profit status used to signal quality?," CEPR Discussion Papers 11240, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11240
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    Cited by:

    1. Levaggi, Laura & Levaggi, Rosella, 2020. "Is there scope for mixed markets in the provision of hospital care?," Social Science & Medicine, Elsevier, vol. 247(C).
    2. Johannes S. Kunz & Carol Propper & Kevin E. Staub & Rainer Winkelmann, 2024. "Assessing the quality of public services: For‐profits, chains, and concentration in the hospital market," Health Economics, John Wiley & Sons, Ltd., vol. 33(9), pages 2162-2181, September.
    3. 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.
    4. Levaggi, Laura & Levaggi, Rosella, 2023. "Competition in the provision of hospital care: Are mixed markets a valid alternative?," Economic Modelling, Elsevier, vol. 127(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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