Pricing and Rationing by Nonprofit Organizations with Distributional Objectives

The growing commercial activities of nonprofit charities, hospitals, educational institutions, arts organizations, day-care centers, nursing homes, and religious organizations have led many to question the legitimacy of the nonprofit designation and the concomitant tax and regulatory advantages conferred upon the sector. If nonprofit organizations are engaging in commercial activity, it is easy to regard them as simply for-profits-in-disguise. However, there are many varieties of commercial activity. This chapter focuses on the ways in which nonprofit organizations and private firms can be expected to differ in their use of various pricing and other mechanisms through which their goods and services are distributed. Unlike for-profits, nonprofits may have a variety of distributional and other Ôbonoficing' objectives and they operate under different legal constraints. We illustrate a wide variety of ways in which distributional goals might be pursued, each suggesting a testable implication.