Nonprofit Firms in Health Care: Lecture Notes on Behavior and Efficiency – Chapter 13

Summary

Nonprofit firms play a significant role in the health care sector. This document covers why nonprofit firms exist, how they behave and how they compare to for-profit firms.

Why Nonprofit Firms Exist

Nonprofit firms exist because of market failures. The Weisbrod model and contract failure theory explain why nonprofits arise to provide public goods and reduce contract failures.

Models of Nonprofit Hospital Behavior

Three models explain nonprofit hospital behavior. The Quality-Quantity Theory focuses on utility maximization. The Profit-Deviating Nonprofit Hospital model combines altruism and profit motives. The Physician’s Cooperative model emphasizes physician income maximization.

Efficiency of Nonprofit vs For-Profit Firms

The Property Rights Theory explains how nonprofits choose non-pecuniary benefits over wealth. Recent studies show little difference in efficiency between nonprofit and for-profit hospitals.

Key terms

Market Failure

A situation where the market does not allocate resources efficiently.

Weisbrod Model

A model explaining the existence of nonprofits due to government failure to provide desired public goods.

Quality-Quantity Theory

A model where hospitals maximize utility by balancing quality and quantity of services.

Contract Failure

A situation where it is hard to verify that a contract has been fulfilled, especially when quality is hard to observe.

Property Rights Theory

A theory explaining how nonprofits choose non-pecuniary benefits over wealth due to the non-distribution constraint.

Questions this document helps with

• What causes market failures in the health care sector?
• How do nonprofit hospitals balance quality and quantity of services?
• What are the differences in efficiency between nonprofit and for-profit hospitals?

Summary written with AI from the document's text.