The Roles of Government and Nonprofit Suppliers in Mixed Industries

Published in: Public Finance Review, v. 28, no. 4, July 2000, p. 275-308

Posted on RAND.org on December 31, 1999

by Kanika Kapur, Geoffrey F. Joyce, Burton Allen Weisbrod

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In what ways, if any, does the behavior of government and nonprofit organizations differ? This article examines evidence from two industries--nursing homes and mentally handicapped facilities--to determine whether government and nonprofit organization behavior differs in identifiable dimensions and, if it does, why the differences occur. Behavior is studied in terms of consumer access, as measured by the use of waiting lists, and output quality, as measured by consumer satisfaction. Considerable differential behavior is found across the two institutional forms, even though both governmental and nonprofit organizations are subject to the nondistribution constraint. By contrast with private firms, both types of organizations may not lawfully distribute profit or surplus to owners, managers, or trustees. The behavioral differences found are consistent with varied models, one of which is that government and nonprofit providers have different objective functions, trading off quality and consumer access differently as government pursues a supplier-of-last-resort objective function.

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