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Firms, Nonprofits and Cooperatives: A Theory of Organizational Choice

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Author Info
Herbst, P.
Prufer, J. (Tilburg University, Tilburg Law and Economics Center)

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Abstract

Abstract This paper formalizes the difference between firms, nonprofits, and cooperatives and identifies optimal organizational choice. In a model of quality provision, we find a clear ranking of quality produced: Firms provide lowest and nonprofits highest levels of quality. Efficiency, however, depends on the competitive environment, the decision making process and technology. Cooperatives are optimal when decision making costs are low. Else, cooperatives are increasingly dominated by either nonprofits or firms (depending on the incremental costs of quality production). Finally, changes in the competitive environment affect organizational choice: Increased competition induces a shift towards firm organization and away from nonprofits. JEL codes: L21, L31, D23 Keywords: Theory of the Firm, Cooperatives, Nonprofits, Organizational Choice, organizational change

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Paper provided by Tilburg University, Tilburg Law and Economic Center in its series Discussion Paper with number 2007-003.

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Date of creation: 2007
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Handle: RePEc:dgr:kubtil:2007003

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  5. Oliver Hart & John Moore, 1998. "Cooperatives vs. Outside Ownership," STICERD - Theoretical Economics Paper Series 346, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
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  6. Timothy Besley & Maitreesh Ghatak, 2005. "Competition and Incentives with Motivated Agents," American Economic Review, American Economic Association, vol. 95(3), pages 616-636, June. [Downloadable!]
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  7. Lakdawalla, Darius & Philipson, Tomas, 2006. "The nonprofit sector and industry performance," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1681-1698, September. [Downloadable!] (restricted)
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  10. Katherine O'Regan, 2005. "Does the Structure and Composition of the Board Matter? The Case of Nonprofit Organizations," Journal of Law, Economics and Organization, Oxford University Press, vol. 21(1), pages 205-227, April. [Downloadable!] (restricted)
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  12. 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.
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  13. Fama, Eugene F, 1978. "The Effects of a Firm's Investment and Financing Decisions on the Welfare of Its Security Holders," American Economic Review, American Economic Association, vol. 68(3), pages 272-84, June. [Downloadable!] (restricted)
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  15. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August. [Downloadable!] (restricted)
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  16. Susan Athey & John Roberts, 2001. "Organizational Design: Decision Rights and Incentive Contracts," American Economic Review, American Economic Association, vol. 91(2), pages 200-205, May. [Downloadable!] (restricted)
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  18. Glaeser, Edward L. & Shleifer, Andrei, 2001. "Not-for-profit entrepreneurs," Journal of Public Economics, Elsevier, vol. 81(1), pages 99-115, July. [Downloadable!] (restricted)
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  19. Milgrom, Paul R, 1988. "Employment Contracts, Influence Activities, and Efficient Organization Design," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 42-60, February. [Downloadable!] (restricted)
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  20. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Blackwell Publishing, vol. 49(1), pages 3-13, January. [Downloadable!] (restricted)
  21. Chou, Shin-Yi, 2002. "Asymmetric information, ownership and quality of care: an empirical analysis of nursing homes," Journal of Health Economics, Elsevier, vol. 21(2), pages 293-311, March. [Downloadable!] (restricted)
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  23. Bilodeau, Marc & Slivinski, Al, 1997. "Rival charities," Journal of Public Economics, Elsevier, vol. 66(3), pages 449-467, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Prufer, J., 2007. "Competition and Mergers among Nonprofits," Discussion Paper 2007-022, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
    Other versions:
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