DP7663 Thanks for Nothing? Not-for-Profits and Motivated Agents

Author(s): Maitreesh Ghatak, Hannes Felix Mueller
Publication Date: January 2010
Keyword(s): free riding, intrinsic motivation, labor donation, not-for-profits
JEL(s): J32, J42, L31, L33
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7663

We re-examine the labor donation theory of not-for-profits and show that these organizations may exist not necessarily because motivated workers prefer to work in them, or that they dominate for-profits in terms of welfare, but because the excess supply of motivated workers makes the non-profit form more attractive to managers. We show that if firms had to compete for motivated workers then not-for-profit firms would be competed out by for-profit firms. Therefore, the choice between not-for-profit and for-profit provision is not always a question of resolving incentive problems but also one of distribution of rents between management and workers, and consequently, the relative scarcity of workers plays an important role in this choice.