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Agency Costs and the Oversight of Charitable Organizations

Geoffrey A. Manne

International Center for Law & Economics (ICLE)

Wisconsin Law Review, Vol. 1999, pg. 227

This article uses property rights theory and the theory of the firm to analyze the behavior of the participants in nonprofit organizations. It locates the failure of nonprofit oversight in the confluence of strict standing rules and nearly insurmountable agency costs. The article repudiates the conventional solutions to the problem (ranging from relaxing standing limitations to restricting the use of the nonprofit form), and proposes a contractual solution through which nonprofits or their founders would secure the services of a set of independent agents to monitor and, where appropriate, enforce the nonprofit's charter and the relevant fiduciary rules through judicial action. Because the monitoring agents would function within a market framework, market controls should operate to constrain the behavior of these agents. Thus donors, philanthropists, and beneficiaries would receive the benefit of effectively monitored corporate (or trust) agents who do not present a significant agency cost problem. The result should be increased accountability on the part of nonprofit agents to their donors or patrons without the serious threat of frivolous suits or politically-selective attorney general enforcement.

Number of Pages in PDF File: 63

Keywords: agency costs, nonprofit organizations, charitable organizations, theory of the firm, standing

JEL Classification: D23, K41, L21, L22, L3, L30, L31

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Date posted: August 17, 1999  

Suggested Citation

Manne, Geoffrey A., Agency Costs and the Oversight of Charitable Organizations. Wisconsin Law Review, Vol. 1999, pg. 227. Available at SSRN: http://ssrn.com/abstract=172688

Contact Information

Geoffrey A. Manne (Contact Author)
International Center for Law & Economics (ICLE) ( email )
2325 East Burnside St.
Suite 301
Portland, OR 97214
United States
503-770-0076 (Phone)
HOME PAGE: http://www.laweconcenter.org
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