Some Reflections on the Transaction Cost Theory of Nonprofit Organisation

Abstract

The paper extends the transaction cost theory of nonprofit organisation by differentiating between two types of transaction costs that are reduced by nonprofits: opportunism-induced, which have been emphasised by existing transaction cost approaches, and bounded rationality-induced, which are conditioned by shortages of information and limited information-processing abilities of individuals who can contribute resources to nonprofits. By reducing these costs, nonprofits increase the total amount of resources that can be contributed to them. The significance of bounded rationality-induced transaction costs is confirmed by the fact that they often appear to be economised by nonprofits more efficiently than opportunism-induced transaction costs.

Keywords: Bounded rationality, nonprofit organisation, opportunism, transaction costs

JEL Classification: D23, D73, L21, L22, L31