Working Paper: CEPR ID: DP7663
Authors: Maitreesh Ghatak; Hannes Felix 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.
Keywords: free riding; intrinsic motivation; labor donation; not-for-profits
JEL Codes: J32; J42; L31; L33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| scarcity of motivated workers (J29) | choice between nonprofit and for-profit organizations (L39) |
| availability of motivated workers (J29) | managerial decisions (M51) |
| oversupply of motivated labor (J20) | thriving of nonprofits (L31) |
| for-profit firms dominate market (L10) | crowding out of nonprofits (L39) |
| conditions of uncertainty regarding project success (D81) | for-profits weakly dominate nonprofits in terms of welfare (L39) |
| labor market conditions (J29) | viability of nonprofit organizations (L31) |