Firms, Nonprofits, and Cooperatives: A Theory of Organizational Choice
CentER Discussion Paper No. 2007-07
TILEC Discussion Paper No. 2007-003
31 Pages Posted: 2 Jun 2005 Last revised: 30 Jan 2014
Date Written: September 20, 2011
Abstract
We formalize the difference between firms, nonprofits, and cooperatives and identify optimal organizational choice in a model of quality provision. Firms provide lowest and nonprofits highest levels of quality. Efficiency, however, depends on the competitive environment, the decision making process among owners and technology. Firms are optimal when decision making costs are high. Else, firms are increasingly dominated by either nonprofits or cooperatives (depending on the incremental costs of quality production). Increased competition improves relative efficiency of firms and decreases relative efficiency of nonprofits.
Keywords: Theory of the Firm, Nonprofits, Cooperatives, Organizational Choice, Organizational Change
JEL Classification: L21, L31, D23
Suggested Citation: Suggested Citation