ABSTRACT
Nonprofit firms account for only 5 percent of GDP, but they make up a significant portion of the health care sector. It also offers 30 percent of nursing home care and half of the inpatient specialty mental health and substance abuse treatment. Weisbrod explains how nonprofit firms might arise to provide public goods that are neglected by the private markets and the government. Hansmann explains how nonprofit firms might reduce or eliminate a contract failure that arises because consumers may not trust the profit-motivated firm to perform faithfully certain functions, often charitable ones. The social efficiency of a market structure requires that society maximize total benefits net of opportunity costs. Harris's model provides the implication of the role of physicians; we can expect that the hospitals preferences for new technology will be driven by the preferences of the physician demanders.
