Nonprofit production and competition
By: Darius Lakdawalla, Tomas Philipson.
Contributors: Philipson, Tomas J.; National Bureau of Economic Research.
Series: NBER working paper series -- working paper 6377; Working paper series (National Bureau of Economic Research) -- working paper no. 6377.
Publisher: National Bureau of Economic Research
Published: 1998
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 44
Subjects: Nonprofit organizations.; Production (Economic theory); Competition.
Description: 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.
Notes: "January 1998."

JEL no. I1.

Includes bibliographical references (p. 43-44).

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