The Phantom Profits of the Opera: Nonprofit Ownership in the Arts as a Make-Buy Decision
AbstractThis article applies contract-theory to explain why nonprofits exist and how they compete for profits. Existing theories about nonprofits either assume that nonprofit organizations engage in "unprofitable" businesses and therefore rely on philanthropy and altruism, or that nonprofits can overcome severe informational asymmetries that for-profits cannot. Instead, I argue that nonprofits arise when consumers integrate into production; consumers, supported by institutions, organize to produce a nonrival good for their own consumption, and in so doing are able to achieve first-best. This modeling approach, developed in the context of classical performing arts, may have application in other industries in which nonprofits compete, such as health care, research and development (R&D), and education. Copyright 2001 by Oxford University Press.
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Bibliographic InfoArticle provided by Oxford University Press in its journal Journal of Law, Economics and Organization.
Volume (Year): 17 (2001)
Issue (Month): 2 (October)
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- Herbst, P. & PrÃ¼fer, J., 2007.
"Firms, Nonprofits, and Cooperatives: A Theory of Organizational Choice,"
2007-003, Tilburg University, Tilburg Law and Economic Center.
- Herbst, P. & PrÃ¼fer, J., 2007. "Firms, Nonprofits, and Cooperatives: A Theory of Organizational Choice," Discussion Paper 2007-7, Tilburg University, Center for Economic Research.
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