Working Paper: NBER ID: w8921
Authors: 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.
Keywords: No keywords provided
JEL Codes: G3; H4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| weak governance structures (G38) | influence of workers over management decisions (J54) |
| accumulation of wealth (E21) | influence of elite workers overshadowing donors (D64) |
| market competition (L13) | check on capture by elite workers (J82) |
| weak governance structures (G38) | greater influence of workers (J29) |
| wealth accumulation (E21) | alignment of worker preferences with operational goals (L21) |
| market pressures (P42) | counterbalance weak governance structures (G38) |