I S N on - P Rofit S Tatus a S Ignal of B Etter Q Uality ? M Icro - L Evel E Vidence from J Apan ’ S a T - Home C Are I Ndustry

After the introduction of public long-term care insurance in 2000, for-profit facilities were allowed to enter the at-home care market in Japan, where nonprofits are dominant. However, according to a popular hypothesis called the “contract failure,” nonprofit centers are preferred over for-profit counterparts due to an asymmetry of information. If this is the case, a change in competition policy in the long-term care market would not work. This study takes advantage of unique data to examine directly whether a choice in type of management is biased toward nonprofits, as the contract failure hypothesis predicts. Our empirical findings are as follows. The share of users of for-profit providers occupies about 40 percent of the at-home care. In this sense, the entrance policy of proprietary firms after the introduction of public long-term care insurance has been welcomed. Regarding the preference between nonprofit and for-profits, households with higher care levels or any acquaintance who is a medical doctor or a professional caregiver are inclined to choose nonprofits, which are associated with the entrance restriction that only nonprofits are incumbent in medical care and institutional care. In addition, nonprofits enjoy their acquired benefits as earlier participants in the market. In this sense, proprietary providers are disadvantageous. On the contrary, households with more knowledge of suppliers tend to choose for-profits, which implies that this mitigating asymmetry of information might overcome the entrance limitations in other related markets, which makes the at-home market more competitive.