Ownership and quality in markets with asymmetric information: Evidence from nursing homes

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The ownership and governance of for-profit (FP), nonprofit (NP), and local government (LG) organizations are different. Therefore, the objectives of these different types of organizations and their performance may differ. We conjecture that in markets where there is substantial asymmetric information between providers and customers, FP firms, LG organizations and NP organizations provide similar levels of quality attributes that are observable to their customers and are well understood by them. However, FP firms are likely to provide lower levels of less-well observed and less-well understood desirable but costly quality attributes than their NP and LG counterparts. Using a rich dataset, we study the quality of outcomes for Minnesota nursing homes, which do not compete on prices. We find support for our theoretical conjectures: FP homes provide lower quality on a number of dimensions, especially those that are less observable by nursing home residents and their families.

Original languageEnglish (US)
Article number42
JournalB.E. Journal of Economic Analysis and Policy
Issue number1
StatePublished - 2012

Bibliographical note

Funding Information:
KEYWORDS: ownership, quality, asymmetric information, nursing homes, for-profit firms, nonprofit organizations, local government organizations ∗This study was supported by Aspen Institute Grant NSRF 2005-1, “A Comparative Study of Organizational Structure, Behavior and Performance,” and by a grant from the Medical Industry Leadership Institute at the Carlson School of Management at the University of Minnesota. We thank the assistance of analysts at various Minnesota state agencies with assembling the dataset. We acknowledge with gratitude the comments of this journal’s editor and referees and the comments of participants at several conferences (Comparative Analysis of Enterprise Data, Sloan Foundation Industry Studies, Public Economics Journées Louis-André Gérard-Varet, American Society of Health Economists, and Association for Research on Nonprofit Organizations and Voluntary Action Conference), and workshops and seminars at the University of Minnesota Carlson School of Management, IESE, Vienna University of Economics, University of Liege, Department of Business Economics at the Universitat Autonoma de Barcelona and Department of Economics at the Central European University. Special thanks to Burton A. Weisbrod.

Publisher Copyright:
Copyright © 2012 De Gruyter. All rights reserved.


  • Asymmetric information
  • For-profit firms
  • Local government organizations
  • Nonprofit organizations
  • Nursing homes
  • Ownership
  • Quality


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