PSYCHIATRIC-HOSPITAL OWNERSHIP AND PERFORMANCE - DO NONPROFIT ORGANIZATIONS OFFER ADVANTAGES IN MARKETS CHARACTERIZED BY ASYMMETRIC INFORMATION

Nonprofit organizations have been hypothesized as being preferable to for-profit organizations in markets characterized by asymmetric inform ation, such as the market for mental health care services. This paper empirically examines whether ownership affects the quality of private psychiatric hospital care. A quality deviation function and a frontier cost function are specified and estimated using data on psychiatric h ospitals in California for the years 1984-1989. The results suggest th at nonprofit hospitals may provide protection against asymmetric infor mation relative to their for-profit counterparts. No difference in eff iciency was found by ownership.