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Quality, reputation and the choice of organizational form

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  • Vlassopoulos, Michael

Abstract

This paper revisits the hypothesis that nonprofit organizations emerge in markets that are characterized by contractual incompleteness because they ensure consumers against opportunistic behavior. We extend the Glaeser and Shleifer [Glaeser, E., Shleifer, A., 2001. Not-for-profit entrepreneurs. Journal of Public Economics 81, 99-115] framework, which studies an entrepreneur's optimal choice of organizational form and service quality when quality is non-contractible into a repeated interaction setting. The main result is that when reputations can be sustained, then for-profit status is the preferred organizational form and high quality services are ensured. This finding suggests that existing explanations of nonprofit organizations that focus entirely on contractual imperfections in the producer/consumer relationship may be inadequate.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 71 (2009)
Issue (Month): 2 (August)
Pages: 515-527

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Handle: RePEc:eee:jeborg:v:71:y:2009:i:2:p:515-527

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Web page: http://www.elsevier.com/locate/jebo

Related research

Keywords: Nonprofit status Reputation Contractual incompleteness;

References

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  1. Benoit, Jean-Pierre & Krishna, Vijay, 1985. "Finitely Repeated Games," Econometrica, Econometric Society, vol. 53(4), pages 905-22, July.
  2. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
  3. Hart, Oliver & Shleifer, Andrei & Vishny, Robert W, 1997. "The Proper Scope of Government: Theory and an Application to Prisons," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1127-61, November.
  4. Susan Rose-Ackerman, 1996. "Altruism, Nonprofits, and Economic Theory," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 701-728, June.
  5. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr.
  6. Edward L. Glaeser & Andrei Shleifer, 1998. "Not-For-Profit Entrepreneurs," Harvard Institute of Economic Research Working Papers 1852, Harvard - Institute of Economic Research.
  7. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August.
  8. Shapiro, Carl, 1986. "Investment, Moral Hazard, and Occupational Licensing," Review of Economic Studies, Wiley Blackwell, vol. 53(5), pages 843-62, October.
  9. Johannes H�rner, 2002. "Reputation and Competition," American Economic Review, American Economic Association, vol. 92(3), pages 644-663, June.
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Cited by:
  1. Ghatak, Maitreesh & Mueller, Hannes, 2011. "Thanks for nothing? Not-for-profits and motivated agents," Journal of Public Economics, Elsevier, vol. 95(1-2), pages 94-105, February.
  2. Lapo Filistrucchi & Jens Prüfer, 2013. "Nonprofits are not alike: The Role of Catholic and Protestant Affiliation," Working Papers - Economics wp2013_07.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.

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