Private Action in Public Interest: The Comparative Governance of Social Issues
58 Pages Posted: 26 Apr 2016 Last revised: 22 Oct 2017
Date Written: October 14, 2017
What is the most efficient way to deal with a social problem? To answer that question, we map various types of market frictions to the organizational forms best suited to dealing with them. Specifically, we argue that for-profits have an advantage in undertaking innovation and coordinating production economies, non-profits in playing a fiduciary role given ex post information asymmetry, self-governing collectives in dealing with bounded externalities through private ordering, and state bureaucracies in governing general externalities. We build on these arguments to develop a mapping between combinations of these frictions and the comparatively efficient arrangements to govern them, including a variety of hybrid arrangements such as private-public partnerships, social enterprises, corporate social responsibility, etc. By providing a comprehensive and rigorous theory of why these various governance arrangements exist, and when they may be comparatively efficient in dealing with social issues, we contribute to research in strategy, organizations, and public policy.
Keywords: market frictions; externalities; information asymmetry; collective action; transaction cost; institutional economics; non-market strategy; non-profit; public-private partnerships; hybrid organizations
JEL Classification: D23, D6, G3, H4, L21, L3, M14, P32
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