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The Governance of Not-For-Profit Firms

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  • Edward L. Glaeser

Abstract

Many factors including incentive-pay, powerful shareholders, and takeover threats push for-profits managers towards maximizing shareholder value. One of the most striking factors about non-profit firms is that they have no comparable governance institutions, and the only check on managers are boards that are themselves rarely responsible to anyone outside the firm. This essay discusses the implications of these weak governance institutions on non-profit behavior. A primary implication is that non-profits will often evolve into organizations that resemble workers' cooperatives. The primary check on this tendency is the need of the organizations to compete in outside markets. After presenting a model of non-profit behavior, I look at four different sectors (hospitals, museums, universities and the church). All display significant signs of capture by elite workers, but all still perform their basic missions reasonably, probably because of market competition.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8921.

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Date of creation: May 2002
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Handle: RePEc:nbr:nberwo:8921

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  1. McCormick, Robert E & Meiners, Roger E, 1988. "University Governance: A Property Rights Perspective," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 31(2), pages 423-42, October.
  2. Pauly, Mark V & Redisch, Michael, 1973. "The Not-For-Profit Hospital as a Physicians' Cooperative," American Economic Review, American Economic Association, American Economic Association, vol. 63(1), pages 87-99, March.
  3. David M. Cutler & Jill R. Horwitz, 1998. "Converting Hospitals from Not-for-profit to For-profit Status," NBER Working Papers 6672, National Bureau of Economic Research, Inc.
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Cited by:
  1. Peter Nunnenkamp & Hannes Öhler, 2010. "Funding, Competition and the Efficiency of NGOs: An Empirical Analysis of Non-charitable Expenditure of US NGOs Engaged in Foreign Aid," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 38, Courant Research Centre PEG.
  2. repec:got:cegedp:109 is not listed on IDEAS
  3. Paul A. Grout & Michelle J. Yong, 2003. "The Role of Donated Labour and Not for Profit at the Public/Private Interface," The Centre for Market and Public Organisation, Department of Economics, University of Bristol, UK 03/074, Department of Economics, University of Bristol, UK.
  4. Rodolfo Apreda, 2003. "THE SEMANTICS OF GOVERNANCE. (The common thread running through corporate, public, and global governance.)," CEMA Working Papers: Serie Documentos de Trabajo., Universidad del CEMA 245, Universidad del CEMA.
  5. Zahra, Shaker A. & Gedajlovic, Eric & Neubaum, Donald O. & Shulman, Joel M., 2009. "A typology of social entrepreneurs: Motives, search processes and ethical challenges," Journal of Business Venturing, Elsevier, vol. 24(5), pages 519-532, September.
  6. Patrick Francois, 2002. "Not-for-profit Provision of Public Services," The Centre for Market and Public Organisation, Department of Economics, University of Bristol, UK 02/060, Department of Economics, University of Bristol, UK.
  7. C. Du Bois & R. Caers & M. Jegers & C. Schepers & S. De Gieter & R. Pepermans, 2004. "Agency problems and unrelated business income of non-profit organizations: an empirical analysis," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 36(20), pages 2317-2326.
  8. Odile Paulus & Christophe Lejeune, 2013. "What do board members in art organizations do? A grounded theory approach," Journal of Management and Governance, Springer, Springer, vol. 17(4), pages 963-988, November.
  9. Pierre Koning & Joëlle Noailly & Sabine Visser, 2007. "Do non-profits make a difference? Evaluating non-profit vis-à -vis for-profit organisations in social services," CPB Document, CPB Netherlands Bureau for Economic Policy Analysis 142, CPB Netherlands Bureau for Economic Policy Analysis.
  10. Rodolfo Apreda, 2002. "Incremental cash flows, information sets and conflicts of interest," CEMA Working Papers: Serie Documentos de Trabajo., Universidad del CEMA 220, Universidad del CEMA.
  11. Martin Gaynor & Robert J. Town, 2011. "Competition in Health Care Markets," NBER Working Papers 17208, National Bureau of Economic Research, Inc.
  12. Pierre Koning & Joëlle Noailly & Sabine Visser, 2007. "Do Not-For-Profits Make a Difference in Social Services? A Survey Study," De Economist, Springer, Springer, vol. 155(3), pages 251-270, September.
  13. Joëlle Noailly & Sabine Visser & Paul Grout, 2007. "The impact of market forces on the provision of childcare: Insights from the 2005 Childcare Act in the Netherlands," CPB Memorandum, CPB Netherlands Bureau for Economic Policy Analysis 176, CPB Netherlands Bureau for Economic Policy Analysis.

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