The private demand for nursing home care.

The fact that many nursing home patients are mentally and physically disabled has led some observers to conclude that they represent irrational consumers who are incapable of disciplining the nursing home care markets. This assumption has, in turn, led policy makers to favor regulatory solutions to nursing home problems. This paper tests the accuracy of this assumption by estimating a demand equation for private nursing home patients. Evidence if found that the private patients' response to price and quality differences among nursing homes is generally systematic and consistent with expectations derived from a conventional constrained optimization model of their behavior. Such behavior is generally consistent with consumer rationality. Some implications for public policy are discussed.