Asymmetric information, ownership and quality of care: an empirical analysis of nursing homes

Abstract

Theoretically, when asymmetric information exists, nonprofit organizations, due to the attenuation of the property right, provide better quality of service than do the for-profits. Despite extensive theoretical examination of the behavior of nonprofits, there has been very little empirical testing of the plausibility of these theories. This article addresses the effect of ownership type on the quality of service in the nursing home industry, an environment particularly conducive to identifying the existence of asymmetric information. The study shows that the differences between for-profit and nonprofit homes do become manifest when asymmetric information is present.

Do Elderly Choose Nursing Homes by Quality, Price or Location?

“…Moreover, the fear of poor market outcomes is particularly acute in this field (Hirth, 1999;Chou, 2002). In particular, information deficits either on the demand or supply side, might lead to market failure (Akerlof, 1970).…”

Does Nonprofit Status Signal Quality?

“…The nursing home industry is subject to a myriad of price, quantity, and quality regulations that render price data unreliable. 7 A second study that tests the signaling theory is Chou (2002). Chou examines the quality of care-as measured by various health outcomesthat nonprofit and for-profit nursing homes provide to two populations of nursing home residents: one that has the assistance of family members to monitor the quality of the home and one that does not.…”

Estimating the out-of-hospital mortality rate using patient discharge data

“…Moreover, because of negative correlation between mortality and future readmission [4], the estimations based on readmission usually do not provide additional information on hospital quality. Another approach used in the literature is a censored duration model of inhospital mortality [8][9][10]. These models to some extent control for the variations in hospital stays across hospitals, but do not give any information about probabilities of discharge, re-hospitalization and post-discharge mortality.…”