How Do Non-Profits Respond to Negative Wealth Shocks? The Impact of the 2008 Stock Market Crash on Hospitals
The theory of cost shifting posits that nonprofit firms “share the pain” of negative financial shocks with their stakeholders, for example, by raising prices. We examine how nonprofit hospitals responded to the sharp reductions in their assets caused by the 2008 stock market collapse. The average hospital did not raise prices, but hospitals with substantial market power did cost shift in this way. We find no evidence that hospitals reduced treatment costs. Hospitals eliminated but left unchanged their offerings of profitable services. Taken together, our results provide mixed evidence on whether nonprofits behave differently from for-profits.
Dranove, David, Craig Garthwaite and Christopher Ody. Forthcoming. How Do Non-Profits Respond to Negative Wealth Shocks? The Impact of the 2008 Stock Market Crash on Hospitals. RAND Journal of Economics. 48(2): 485â€“525.