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

Carol Propper, Sarah Smith and Daniel Jones

No 11240, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: Non-profit; Quality disclosure; Nursing homes (search for similar items in EconPapers)
JEL-codes: I11 I18 L31 L38 (search for similar items in EconPapers)
Date: 2016-04
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Journal Article: Wolves in sheep’s clothing: Is non-profit status used to signal quality? (2017)
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