Description:

Hans Zhu: "Limiting For-profit Provision in Nursing Homes"

Abstract:
We consider whether policies which affect the extent of for-profit versus not-for-profit provision in regulated markets such as in health and education can be effective at addressing quality shortfalls. We study these ideas in the context of the US nursing homes industry, where significant quality shortfalls have been persistent for many decades, despite a long history of other policy reforms, and in which policymakers have recently considered policies limiting the extent of for-profit provision. Our motivating evidence suggests that not-for-profit providers do choose higher quality inputs. However for-profit providers play an important role in providing access to nursing home services. Not only do they serve the majority of markets but they systematically locate in lower socioeconomic areas and serve more needy residents. Thus whether limiting the extent of for-profit provision is welfare enhancing is an empirical question. We develop a 2-stage static model of oligopoly competition and entry to explore counterfactuals of interest. The model also aims to provide a coherent explanation for the observed and realised choices of quality, who serves which types of residents and locations through non-pecuniary motives, costs and preferences. I will briefly present some motivating facts and then focus on showing and discussing issues with estimating supply parameters.