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Thanks for Nothing? Not-for-Profits and Motivated Agents

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  • Maitreesh Ghatak
  • Hannes Mueller

Abstract

We re-examine the labor donation theory of not-for-profits and show that these organizations may exist not necessarily because motivated workers prefer to work in them, or that they dominate for-profits in terms of welfare, but because the excess supply of motivated workers makes the non-profit form more attractive to managers. We show that if firms had to compete for motivated workers then not-for-profit firms would be competed out by for-profit firms. Therefore, the choice between not-for-profit and for-profit provision is not always a question of resolving incentive problems but also one of distribution of rents between management and workers, and consequently, the relative scarcity of workers plays an important role in this choice.

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Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Economic Organisation and Public Policy Discussion Papers Series with number 014.

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Date of creation: Nov 2009
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Handle: RePEc:cep:stieop:014

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Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp

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Keywords: not-for-profits; intrinsic motivation; labor donation; free riding;

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