Introduction
From education to healthcare reform, the past year has seen many key areas of the rapidly growing and evolving nonprofit sector come under increased scrutiny. Yet too few researchers pay attention to the sector’s unusual organizational structures, in which major service industries—such as nursing homes, universities, and museums—often compete against or collaborate with for-profit and government organizations. These interactions among institutional forms in mixed industries are a key research focus of this program.
 Overview
of Activities
Public Goods Provision in Nonprofit, For-Profit, and Government Hospitals
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Leemore Dafny and Burton Weisbrod discuss differences between for-profit and nonprofit insurers after her seminar. |
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As more cash-strapped states seek out creative ways to boost revenue, some legislators are beginning to question the property tax and sales tax exemptions of nonprofit hospitals. In ongoing research, IPR economist Burton Weisbrod asks, what does the public get back for these tax breaks? He examines public goods provided by hospitals in terms of research and education as well as charity care to determine whether subsidized nonprofit hospitals provide “more” than for-profit hospitals. After studying decades of data on all hospitals in California, his preliminary results suggest there are no significant differences in research and education across hospital ownership types, but substantial differences in charity care, with for-profits reporting far less charity care than nonprofits. Weisbrod is John Evans Professor of Economics.
Quality Disclosure and Certification
Consumers rely on quality disclosure to make important purchases, whether for goods or services, from healthcare to education to finance. Healthcare economist and IPR associate David Dranove and University of Maryland economist Ginger Zhe Jin are reviewing the theoretical and empirical literature on quality disclosure and its effects on firms and consumers. They find that third-party disclosure generally provides consumers with more reliable information than direct—and often unverified—disclosure from companies or informal, word-of-mouth reviews. However, even outside certifiers sometimes face conflicts of interest that can muddy the quality ratings they report. Furthermore, many empirical studies have documented that consumers do respond to quality rankings when those rankings differ from preconceived notions of quality, but it is important that the disclosed information is easy to access and understand.
Market Forces in the Hospital Industry
Starting in the 1990s and continuing through much of the 2000s, hospital mergers became quite common. Despite arguments that such mergers would improve healthcare delivery, hospital costs continue to soar. Dranove has been following the consequences of large-scale horizontal integration in the hospital industry and investigating the validity of similar efficiency arguments now being used to promote vertical integration in mergers between doctors and hospitals. He finds that—similar to hospital mergers—there is little evidence that these new Affordable Care Organizations (ACOs) will improve efficiency. In fact, his research suggests that ACOs will likely add to the already growing market power of providers and increase hospital spending rather than lower costs.
Evaluating an Individual Health Plan Exchange
Most U.S. workers fortunate enough to be offered health insurance through their employers are given a small number of choices: 80 percent of firms, accounting for 37 percent of workers, offered only one plan in 2005. Although there are merits of limited choice—including lower administrative costs for sponsoring employers and better pooling of risk within a given employee population—substantial consumer surplus is forgone by preventing employees from selecting plans that best suit their needs. In a project with Columbia University economist Katherine Ho and Kellogg graduate student Mauricio Varela, healthcare economist and IPR associate Leemore Dafny estimates this consumer loss using proprietary data on plan offerings and enrollment for more than 800 large employers between 1998 and 2006. Analysis of this data set, representing more than 10 million Americans annually, shows that the gains from increasing plan choice would likely outweigh potential premium increases associated with a transition from large group to individual pricing.
The researchers also examine a hypothetical scenario of “plan swapping”—keeping constant the number of options available to a given employee, but replacing the actual choice set with a set of plans the employee would have preferred. This analysis yields some unexpected results, including the fact that employees would not, on average, select more expensive plans than employers are currently offering but would instead choose plans with different characteristics. In particular, current choice sets do not reflect the strength of employee preferences for point of service plans, or for plans of all types offered by Blue Cross Blue Shield affiliates.
Tort Reform and Medical Malpractice
Law and finance professor Bernard Black, an IPR associate, continues his study of tort reform and medical malpractice suits. In a forthcoming book from Yale University Press, “To Sue is Human: A Profile of Medical Malpractice Litigation,” he and his co-authors use data from approximately 16,000 Texas medical malpractice claims between 1988 and 2005 to examine the state’s liability system and insurance markets. The book will provide the most detailed empirical study to date of the performance of the medical malpractice system.
Black, who is Nicholas D. Chabraja Professor, is writing the book with four of the nation’s preeminent legal and health scholars: David Hyman of the University of Illinois at Urbana-Champaign, William Sage and Charles Silver of the University of Texas at Austin, and Kathryn Zeiler of Georgetown University. Black is also studying the impact of tort reform on medical spending and healthcare quality.
Patent Damages and Legislative Reform
Proponents of patent-reform legislation pending in Congress have cited cases with very large damage awards as evidence of the pressing need for change. Yet IPR associate Michael Mazzeo, associate professor of management and strategy, finds that these concerns are largely unwarranted. In a study with lawyer Jonathan Hillel and Samantha Zyontz of the Searle Civil Justice Institute at George Mason University, he uses the economic value of patents as a benchmark for comparison to conduct a systematic empirical analysis of patent damage awards. From a comprehensive list of 340 patent cases decided in U.S. federal courts between 1995 and 2008, supplemented with information about the litigants, their lawsuits, and the economic value of the patents at issue, the researchers demonstrate that the largest awards—dominating the current policy debate—actually come from isolated cases: Damage awards in the largest eight cases represent more than 47 percent of total damages in the database. Overall, the awards are in fact highly stable and predictable, and thus, Mazzeo argues, there is no empirical basis for the claims that excessive damages represent a pervasive problem.
National Patent Laws and Domestic Innovation
Marketing professor and IPR associate Yi Qian is expanding her work on how patent reforms affect inward foreign direct investment with a look at the international pharmaceutical industry. Drawing from her database of patent effects and pharmaceutical innovations in 26 countries, Qian shows that pharmaceutical patent protection alone does not stimulate domestic innovation. Rather, its impact depends on the country’s development level, educational attainment, economic freedom, and other variables. These findings contrast with previous estimates of patent effects for research and development that looked only at conditions in the United States.
Qian’s study also shows that terms of trade are likely to decline immediately upon the implementation of new intellectual property rights.
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Jeannette Colyvas studies how policy affects innovation and entrepreneurship in academia. |
Academic Entrepreneurship in Europe
IPR associate Jeannette Colyvas’ research focuses on intellectual property issues in academia and the relationship between public research and private industry. With Carolin Haeussler of the University of Munich, she is currently investigating how researchers in the life sciences engage in commercial activities and different forms of technology transfer. Using a sample of 2,200 life scientists in Germany and the United Kingdom, the researchers test hypotheses of commercial engagement related to the scientists’ individual attributes, their material and social resources, and perceptions about values and reputation. It appears that for the most advantaged academics, science and commerce go hand in hand, but the relationship is less clear for the majority of life scientists in the study. Results also suggest that demographic and resource-based characteristics play an important role. For example, women in the study were equally active in consulting activities but much less likely to be involved in starting new companies. Colyvas is an assistant professor of human development, social policy, and learning sciences.
Regulating Risk: The Case of Nanotechnology
Taking the case of nanotechnology, law professor and IPR associate David Dana is editing a book that looks at how the law can adequately track scientific risk without sacrificing technological innovation. As research on nanomaterials escalates, regulators are paying attention to these materials and their nanoparticles because of a small body of scientific studies suggesting that certain nanomaterials could pose environmental, health, or safety risks. Yet these studies are too limited to provide a general basis for assessing risk for all nanoscale materials. Thus, the book’s chapters explore how regulators can rise to the challenge of regulating new technologies by creating definitions of new materials in a manner flexible enough to capture changes in scientific understanding and technology without overregulation. The volume will also include a chapter by IPR political scientist James Druckman and Toby Bolsen, a former IPR graduate research assistant now at Georgia State University, that examines whether factual information influences the public’s reactions toward new technologies such as nanotechnology. “The Nanotechnology Challenge: Creating Legal Institutions for Uncertain Risk” is forthcoming from Cambridge University Press. Dana is Stanford Clinton Sr. and Zylpha Kilbride Clinton Research Professor.
The Business of Higher Education
Weisbrod’s ongoing research examines the causes for variation within and across industries in endowment size. He is also in the midst of a project with labor economist Ron Laschever of the University of Illinois at Urbana-Champaign to examine the determinants of college donations and particularly whether athletics crowds out giving to other programs. Weisbrod and IPR project coordinator Evelyn Asch have examined athletics as one flashpoint area in the business of higher education—as the desire to make money from college sports seems to outweigh a university’s mission to educate its students. Weisbrod and Asch obtained contracts for football coaches at public universities playing in the top NCAA division. Not one of the 70 contracts the researchers examined offered a bonus for student-athletes’ academic success that was at all comparable to the coaches’ bonuses for winning games. In their San Francisco Chronicle editorial, Weisbrod and Asch give the example of how the contract for the University of Florida’s football coach rewards him with up to $450,000 in performance bonuses for team wins, but contains no incentives to help his players graduate. They conclude that for these 70 schools, football revenue is more important than the student-players’ education.
Performance Measurement and Rewards
Weisbrod organizes the ongoing IPR Seminar Series on Performance Measurement and Rewards in the Public and Nonprofit Sectors around the core belief that the challenges of measuring and incentivizing performance are the same regardless of activity, from education to healthcare to policing. The series includes a multidisciplinary line-up of Northwestern researchers as well as experts from around the United States.
To kick off its fourth year, the series welcomed Jason Saul, CEO of Mission Measurement and Kellogg lecturer of social enterprise, who recounted his attempts to build a culture of measurement inside some of America’s biggest nonprofits, including the American Red Cross and Boys and Girls Clubs of America. Weisbrod also gave a talk on his own research comparing the endowments of schools, museums, charities, and other nonprofit organizations.
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Jeffrey Brown of the Univesity of Illinois at Urbana-Champaign presents his research on the after-effects of shocks to university endowments as part of the IPR Seminar Series on Performance Measurement. |
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Two seminars in 2010 examined performance in the mixed public/private healthcare industry: Dafny discussed differences between nonprofit and for-profit insurers, and Harvard business professor Regina Herzlinger explained how creation of a “healthcare SEC” might bring greater transparency to the industry. Two other experts addressed performance measurement in the education arena: Finance professor Jeffrey Brown of the University of Illinois at Urbana-Champaign presented his work on how market shocks to university endowments affect payout policies and spending decisions, and Dartmouth economist Douglas Staiger showed evidence that objective performance data, including student test scores, are useful to principals in evaluating employees and improving productivity.
Weisbrod is working on a book manuscript that will address some of the unintended but predictable consequences of tying rewards to measured performance in a wide array of nonprofit and public organizations.
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