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 information, 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 hospitals in California for the years 1984-1989. The results suggest that nonprofit hospitals may provide protection against asymmetric information relative to their for-profit counterparts. No difference in efficiency was found by ownership.