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

  • Maitreesh Ghatak
  • Hannes Mueller

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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File URL: http://sticerd.lse.ac.uk/dps/eopp/eopp14.pdf
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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
Contact details of provider: Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp

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  1. Patrick Francois, 2003. "Not-For-Profit Provision of Public Services," Economic Journal, Royal Economic Society, vol. 113(486), pages C53-C61, March.
  2. Preston, Anne E, 1989. "The Nonprofit Worker in a For-Profit World," Journal of Labor Economics, University of Chicago Press, vol. 7(4), pages 438-63, October.
  3. Rowat, Colin & Seabright, Paul, 2004. "Intermediation by Aid Agencies," CEPR Discussion Papers 4781, C.E.P.R. Discussion Papers.
  4. Macchiavello, Rocco, 2006. "Public Sector Motivation and Development Failures," CEPR Discussion Papers 5906, C.E.P.R. Discussion Papers.
  5. Bénabou, Roland & Tirole, Jean, 2004. "Incentives and Prosocial Behaviour," CEPR Discussion Papers 4633, C.E.P.R. Discussion Papers.
  6. Delfgaauw, Josse & Dur, Robert, 2007. "Signaling and screening of workers' motivation," Journal of Economic Behavior & Organization, Elsevier, vol. 62(4), pages 605-624, April.
  7. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  8. Fama, Eugene F & Jensen, Michael C, 1983. "Agency Problems and Residual Claims," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 327-49, June.
  9. Vlassopoulos, Michael, 2009. "Quality, reputation and the choice of organizational form," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 515-527, August.
  10. Paul Gregg & Paul A. Grout & Anita Ratcliffe & Sarah Smith & Frank Windmeijer, 2008. "How important is pro-social behaviour in the delivery of public services?," The Centre for Market and Public Organisation 08/197, Department of Economics, University of Bristol, UK.
  11. MacLeod, W Bentley & Malcomson, James M, 1989. "Implicit Contracts, Incentive Compatibility, and Involuntary Unemployment," Econometrica, Econometric Society, vol. 57(2), pages 447-80, March.
  12. Timothy Besley & Maitreesh Ghatak, 2005. "Competition and Incentives with Motivated Agents," American Economic Review, American Economic Association, vol. 95(3), pages 616-636, June.
  13. Glaeser, Edward L. & Shleifer, Andrei, 2001. "Not-for-profit entrepreneurs," Journal of Public Economics, Elsevier, vol. 81(1), pages 99-115, July.
  14. Patrick Francois & Michael Vlassopoulos, 2008. "Pro-social Motivation and the Delivery of Social Services," CESifo Economic Studies, CESifo, vol. 54(1), pages 22-54, March.
  15. Baker, George & Gibbons, Robert & Murphy, Kevin J, 1994. "Subjective Performance Measures in Optimal Incentive Contracts," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1125-56, November.
  16. Bilodeau, M. & Slivinski, A., 1997. "Retional Nonprofit Entrepreneurship," UWO Department of Economics Working Papers 9709, University of Western Ontario, Department of Economics.
  17. H. Naci Mocan & Erdal Tekin, 2003. "Nonprofit Sector and Part-Time Work: An Analysis of Employer-Employee Matched Data on Child Care Workers," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 38-50, February.
  18. Richard G. Frank & David S. Salkever, 1994. "Nonprofit Organizations in the Health Sector," Journal of Economic Perspectives, American Economic Association, vol. 8(4), pages 129-144, Fall.
  19. Lakdawalla, Darius & Philipson, Tomas, 2006. "The nonprofit sector and industry performance," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1681-1698, September.
  20. Francois, Patrick, 2000. "'Public service motivation' as an argument for government provision," Journal of Public Economics, Elsevier, vol. 78(3), pages 275-299, November.
  21. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
  22. Susan Rose-Ackerman, 1996. "Altruism, Nonprofits, and Economic Theory," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 701-728, June.
  23. Leete, Laura, 2001. "Whither the Nonprofit Wage Differential? Estimates from the 1990 Census," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 136-70, January.
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