author(s): neel hajra, 2010 license: unless otherwise noted, this material is made available under...
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Author(s): Neel Hajra, 2010
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PubPol 671:Policy & Management in the Nonprofit Sector
Lecture 3: Why Is There a Nonprofit SectorAnyway? (cont.)
Neel Hajra
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Reports from the Field
NGen Fellows work in DCSE MI Public Policy Council
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Note: Good Guest Lecturers!GovernanceCollaboration & Merger (maybe)FoundationsFinance / CapitalPolicy making
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NextExpansion on economic and
political theory readingsSynthesis into “three failures”
theoryGroup exercise
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Hansmann Focus Economic theories premised on
non-distribution constraint (and “fair compensation constraint”)
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Matrix: Funding and Control
Commercial
Donative
Mutual Entrepreneurial
Side note:Who is customer?
Neel Hajra
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Market & Government Failures
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A Market Share Perspective
Neel Hajra
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Failure 1: Under-Provision of Collective Goods
Pure public good:◦ “nonrival”◦ “nonexcludable”◦ e.g., national defense
Market fails because:◦ Everyone free rides
Government fails because:◦ Responds primarily to broad and political
needsSo nonprofits respond by:
◦ Providing public goods (“collective goods”). A gap-filling role.
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Failure 2: Overexclusion from Excludable Collective Goods
Allocative inefficiency◦ Excluding consumers from goods that can
be provided without detriment to others (pareto efficiency)
Market fails because:◦ Market limits access to paying customers
Government fails because:◦ Insufficient provision, regulation, or
subsidyNonprofit responds by:
◦ Enabling better price discrimination and cross-subsidy
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Failure 3: Contract Failure Trust
◦ Difficulty assessing quantity or quality of service (e.g., Haiti!!)
Market fails because:◦ Incentive to “cheat”
Government fails because:◦ Insufficient enforcement, regulation, or
monitoringNonprofits respond by:
◦ Trust through non-distribution
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Wyclef!
Source: Harrywad, Wikimedia Commons
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Side note: Agency and inputs Easley and O’Hara
When outputs are not policeable, nonprofits more efficient due to higher accountability via tax and corporation law authorities:1. Compensation: fair compensation
constraint2. Allocation of purchase price: non-
distribution constraint3. Effort: minimal observableFor-profit Nonprofit Government
Low Accountability Mechanism High Accountability Mechanism(Low Bureaucracy) (High Bureaucracy)
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Other Economic Theories
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Subsidies Theory Tax exemptions for organizations
and donors, postal rates, bond financing
Enhances market share But always balanced by other
constraints (e.g., attracting capital, compensation constraint, etc.)
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Consumer Control theoryMutual benefit organizationsControl to avoid exploitationReaction to monopoly
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Still more “failure” to consider…
Failed!
Failed!
Neel Hajra
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Voluntary Failure theory(not in readings!)
Philanthropic insufficiency: Under-donation because of free rider concerns (of individuals AND government)
Philanthropic particularism: Focus on specific subgroups yields gaps and redundancies
Philanthropic Paternalism: Clients don’t vote for nonprofits like they do for government!
Philanthropic Amateurism: Tendency to rely on less credentialed workers, particularly for moral (vs. technical) issues
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Three Failures Theory
Market FailureG
ov’t F
ailu
re
Voluntary Failure
No sector is “first”No SectorIs “First”
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Next: Political Theories
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Managing Free RidersServices can remain voluntary
until supporters’ contributions no longer have significant impact
“State action is voluntary action made universal”
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Categorical Constraint State distribution of benefits
must be seen as equitable Voluntary sector has no such
constraints Gap filler!
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Categorical Constraint: Diversity Greater diversity of social
provisions Supplemental public goodNonprofits are ‘first casualty of
totalitarianism’ (Douglas)
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Categorical Constraint: Experimentation Diversity Flexibility (e.g., abandonment)“Balance is not necessarily a
desirable objective”◦Enable unpopular and eccentric◦Policy implications?
Note – Office of Social Innovation
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From today’s Ford School Event: “Harlem Children's Zone is effective at increasing the achievement of the poorest minority children. Taken at face value, the effects in middle school are enough to close the black-white achievement gap in mathematics and reduce it by nearly half in English Language Arts. The effects in elementary school close the racial achievement gap in both subjects.”
Harlem Children’s Zone talk at University of Michigan, 2010
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Categorical Constraint: Bureaucratization
Public/political accountability add bureaucracy to government
Nonprofits: market mechanism accountability
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Political Nonprofits
Promote democratic ideals Facilitate compromise and make
it harder to achieve
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So What?
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Policy
These competing theories are the building blocks for:
UnderstandingMakingDefending or AttackingRole of the sector!
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ManagementInforms strategy and decision-
makingInforms role of organization
within community/societyInforms the interplay with other
two sectors: complementary strengths, competitive (dis)advantages