Soft budget constraints and ownership: Empirical evidence from US hospitals

Consistent with the property rights theory of ownership incorporating soft budget constraints (SBCs), we find that controlling for SBCs, for-profit hospitals drop safety-net services more often and exhibit higher mortality rates, suggesting aggressive cost control that damages non-contractible quality.

Research Highlights► Softness of budget constraints (SBCs) partly explains ownership differences. ► Controlling for SBC, for-profit hospitals shut down safety net services more often. ► For-profit hospitals also exhibit higher mortality rates, conditional on SBC.