Introduction
The rapidly growing and evolving nonprofit sector is prominent in major service industries such as hospitals, nursing homes, higher education, and museums—often competing with for-profit and government organizations but also often collaborating with them. These interactions among institutional forms in mixed industries are a key research focus of this program and its chair, economist Burton Weisbrod. Faculty in this area examine:
 Overview
of Activities
Performance Measurement of Nonprofits
Fundamental to problem solving for any firm, be it nonprofit, public, or for-profit, is how to empirically measure “performance” or “outcomes” to enhance performance. Yet to gauge nonprofit and public services, such as hospitals, museums, schools, or the police, by a private profitability metric is an exceedingly complex undertaking. Such a gauge does not adequately reflect their true societal contributions and thus misses key aspects of their performance. Against this backdrop, economist Burton Weisbrod heads a unique interdisciplinary group exploring how to gauge and improve performance measures in the public and nonprofit sectors and how to translate such measures into effective and efficient reward systems for the persons involved, including teachers, police, and hospital administrators.
Weisbrod, John Evans Professor of Economics, organizes the IPR Seminar Series on Performance Measurement around the core belief that the challenges of measuring performance and establishing rewards are the same regardless of the area of application. In addition to speakers from universities and organizations locally and around the United States, the series welcomed a multidisciplinary line-up of Northwestern faculty.
The second year kicked off with the Spencer Foundation’s chief financial officer, Mary Cahillane, who reviewed the foundation’s efforts to measure the success of its grant-making activities. Field Museum program director Elizabeth Babcock addressed the challenges of measuring the success of education and scientific outreach programs at a nonprofit natural history museum.
On the academic side, Stanford education professor Walter “Woody” Powell discussed his work on how expanded professionalism influences nonprofits’ construction as formal organizations with clear boundaries and purposes. Economist Harvey Rosen of Princeton University spoke about his project looking at how alumni volunteers solicit donations from classmates as a test of the “iron law of fundraising”—that people do not donate to a charity unless they are asked. Economist Ginger Zhe Jin of the University of Maryland talked about her investigation of whether and how rankings of college quality affect a key rankings measure—financial resources per student—at public colleges. Additional presentations were held on measuring performance in public transportation by economist Ian Savage of Northwestern and in higher education by Weisbrod and Evelyn Asch, an IPR project coordinator. The seminar series receives funding from the Searle Center on Law, Regulation, and Economic Growth, which is housed in Northwestern’s School of Law.
The Business of Higher Education
As part of a study of the higher education industry, which is a mixture of public, nonprofit, and for-profit institutions, Weisbrod authored Mission and Money: Understanding the University (Cambridge University Press, 2008) with IPR project coordinator Evelyn Asch and Jeffrey Ballou of Mathematica. Weisbrod gave several talks over the year about the book, including a keynote lecture in September at the Searle Center on Law, Regulation, and Economic Growth and an IPR colloquium that was broadcast on C-Span’s Book TV.
Moving beyond the traditional focus on elite schools, the book examines sources of revenue for the entire higher education industry—from non–degree-granting career academies to major research universities. Many of these institutions pursue activities related to their mission that are often unprofitable, yet they also engage in profitable revenue-related activities to finance them. Sometimes the pursuit of finances can conflict with the central mission of higher learning, however. The authors address the rapid growth of for-profit schools and consider the role of advertising, branding, and reputation, as well as competitive factors, such as distance education, intercollegiate athletics, and lobbying. In addition to covering such issues as how various forces affect
private donations to any particular school, the true—as compared with the reported—profitability of athletics, and colleges’ legislative lobbying, the authors also examine entries, exits, and mergers of schools, conversions from one ownership form to another, collegiate credit ratings, university “technology transfer” activities, and responses to competition and advertising. The Spencer Foundation supported the research.
Metrics of Knowledge Transfer and University Entrepreneurship
Jeannette Colyvas, assistant professor of human development, social policy, and learning sciences, is working on a project to delineate better indicators or knowledge transfer and university entrepreneurship. Past results have shown that traditional benchmarks lead to uneven outcomes due to metrics that fail to capture how much entrepreneurial practices have become sustainable in academic settings. She is exploring better options for organizational mechanisms, such as policies and procedures, and for network mechanisms, such as composition of inventors’ research teams and their collaboration structure. Her early findings reveal a need to distinguish between those metrics promoting entrepreneurial practices and those that render such practices self-enforcing. She also analyzes how early involvement in commercial science endeavors affects the subsequent academic careers of graduate and postdoctoral students.
Report Cards and HMO Quality
In an article in the RAND Journal of Economics, healthcare economists Leemore Dafny and David Dranove report evidence that government-mandated report cards are an effective means of disseminating quality information. Using panel data on Medicare HMO market shares between 1994 and 2002, they examine the relationship between enrollment and quality before and after report cards were mailed to 40 million Medicare beneficiaries in 1999 and 2000. They find that public report cards do tell consumers something they didn’t know and wouldn’t otherwise have learned on their own. However, they also find an important role for market-based learning about healthcare quality, an intriguing result given the difficulties in measuring quality in this market. Their estimates also suggest that quality reporting is unlikely to persuade Medicare enrollees to abandon traditional Medicare for the Medicare HMO program (currently known as Medicare Advantage), one of the stated goals of the report-card intervention.
Competition in Health Insurance Markets
In spite of the enormous sums of public and private funds entrusted to private insurance carriers, there is little systematic research about them. The vast majority of Americans purchase health insurance through the private sector. Moreover, in recent years the public sector has increasingly turned to private insurers to deliver some or all of their commitments to enrollees. Using a privately gathered national database of insurance contracts from a sample of large, multisite employers, Dafny investigates whether these markets are competitive by examining insurance carriers’ pricing. She finds that insurers are successfully charging higher premiums to more profitable firms and that such markups are frequent in markets with little competition. This finding suggests that, at least in some markets, imperfect competition among carriers is leading to higher health insurance premiums.
Nonprofit Hospitals and Revenue Activities
Weisbrod and Maxim Sinitsyn of McGill University look at how nonprofit hospitals engage in unrelated business activities, which are distinct from their tax-exempt mission and thus subject to corporate profits taxation, to fund unprofitable public good services like charity care. They find that many nonprofit hospitals engage in such activities. In comparing their behavior with that of their for-profit counterparts, the researchers show that each seems to be consistent with the intended pursuit of revenue, and thus the nonprofits’ reported unprofitability masks the true profitability of unrelated business activities.
Usage of Brand-Name and Generic Drugs
Weisbrod is investigating market change for brand-name and generic drugs between 1970 and 2004. In looking at the 50 most-dispensed drugs each year and noting when new drugs first appeared on the list, he finds a substantial increase in the number of new brand-name drugs on the most-dispensed lists. Between 1970 and 1981, only 6 to 8 percent of all brand-name drugs on the most-dispensed list were new each year. In the past decade, however, it has increased to more than 10 percent. At the same time, the quantitative importance of generic drugs, and of new generics, grew especially sharply, particularly since 1985. These findings reveal a picture of quantitative change over time, an important consideration given how much brand-name pharmaceuticals are increasing as a slice of total healthcare expenditures—despite the growth of low-cost generic drugs. These measures do not capture the medical importance of a new drug, except by usage, but they do reflect a way to measure the availability and usage of commonly prescribed medications.
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