EconTech

Via Cowen:

What should be an allowable non-profit?

In a ruling last December that sent tremors through the not-for-profit world, the Minnesota Supreme Court said a small nonprofit day care agency here had to pay propery taxes because, in essence, it gave nothing away.

…Almost 88 percent of overall nonprofit revenues in 2005, the most recent year for which figures are available, came from fees for services, sales and sources other than charitable contributions…Nonprofit health care providers, day care centers and retirement homes, among others, are often difficult to distinguish from their tax-paying competitors.

…the Mall of America, a major tourist attraction, was seeking tax exemptions as part of its plans to expand, arguing that it aids the state economy by drawing visitors.

Here is the full story, interesting throughout.  I would say the Mall of America no, hospitals no (any subsidy to care should be more selective), the AAA club no, universities yes (ideas are public goods), and charities yes.  And here are important new developments in the world of Harvard philanthropy.

I am intrigued with Cowen’s assertion on hospitals. Most insiders (doctors, nurses, and hospital administrators) that I have met believe that non-profit hospitals behave differently from for-profit hospitals. Some of those hospital administrators have signed up to the for-profits in order to increase in their income (possibly relevant if all the competent administrators end up ditching the non-profits). More detailed analysis seems to backup the claims that non-profit hospitals behave differently than their for-profit competitors, namely, they maximize output rather than profit.

Usually, I would immediately say that that is strong evidence in favor of allowing non-profits to continue in their ways. However, since we know we are providing too much care at the margin, there are questions to be asked here about the effectiveness of the extra units of care being provided by the non-profits and their costs.