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2 Does Ownership Matter in the Selection of Service Providers? Evidence from Nursing Home Consumer Surveys Avner Ben-Ner Center for Human Resources and Labor Studies University of Minnesota C Twin Cities, Darla J. Hamann School of Urban and Public Affairs University of Texas at Arlington Ting Ren HSBC Business School Peking University This Version: August

2013 Abstract This study considers the role of ownership in consumer choice of service providers in mixed-ownership industries. Though several nonprofit theorists have assumed that consumers will choose nonprofit and government-owned over for-profit service providers due to relative incentives for exploiting informational advantages in each sector, recent research in consumer behavior is questioning this assumption. Using data from a consumer survey in the nursing home industry, we found that despite empirical evidence showing that nonprofit health care organizations were of higher quality, consumers who used ownership status in their search were more likely to choose for-profit organizations. We also found that consumers who searched more extensively were more likely to choose nonprofit organizations, perhaps because their information gathering resulted in favorable impressions of nonprofit nursing homes. Our findings provide little support to the contract failure hypothesis, lending more support to the contention that stereotypes about sector are influential in determining consumer behavior. This study was supported by the Aspen Institute Grant NSRF 2005-1, A Comparative Study of Organizational Structure, Behavior and Performance. ? ?

3 In markets with asymmetric information, it has been well documented in the consumer behavior literature that during the buying process, consumers will conduct various pre-purchase information searches on merchandise or services before they make the buying decision (Beatty and Smith 1987;

Mourali, Laroche and Pons 2005) to mitigate exploitation. Due to the constraints of time, effort, preferences and information availability, consumers tend to rely on limited sources and can be influenced by symbolic factors as exemplified by fashion (Midgley 1983). They may also rely on signals that they believe are correlated with quality or value;

one of these signals is organizational ownership. This kind of perceptual pattern is demonstrated by recent research that has found that consumers tend to associate nonprofit ownership with warmth and trustworthiness, and for-profit ownership as competent (Aaker, Vohs, and Mogilner 2010;

Drevs, Tscheulin, and Lindenmeier forthcoming;

Handy, Seto, Wakaruk, Mersey, Mejia, and Copeland 2010;

Schlesinger, Mitchell, and Gray 2004a, 2004b). It has been argued that organizations that are not motivated by profit, such as nonprofit or local government-owned organizations, are less likely to exploit asymmetric information than their for-profit counterparts, and thus provide higher levels of less observable quality (Ben-Ner, Karaca-Mandic, and Ren 2012;