The spectrum of nonprofit organizations incorporate certain character- istics of business (for-profit) organizations and of government (public) organizations, but have their own unique character apart from either of these two. Accordingly, theories of nonprofits derive from multiple fields: economics, political science, history, sociology, and organization theory. Some of the theories from across fields address the question of why nonprofit organizations exist, such as how the existence of nonprofit organizations in a society dominated by capitalistic enterprise may be explained. Other theories address the question of how nonprofits oper- ate, that is, how they obtain and use resources. While these two areas of inquiry may be separable, they also intersect.
Much of the research on nonprofit organizations has been concerned with those nonprofits that provide goods and services to the public that are socially beneficial, that is, serve some social purpose such as chari- table activities. This chapter has a similar focus. Clearly all types of nonprofits provide some service to the public, however. This may occur with member or service associations where public information is pro- vided as a secondary service or byproduct, for example, automobile safety statistics compiled by an auto services association or services provided as a result of funding from a private nonprofit foundation. This may also occur with a political interest or pressure group, for exam- ple, where advocacy generates a policy change that has wide public effects. I consider these possibilities in later chapters on public policies related to taxation and regulation (Chapter 9) and industrial organiza- tion (Chapter 10).
Elements of property rights theory can be found in theories across all fields that address the question of why nonprofit organizations exist in a democratic market-based society. Historians and sociologists focus on issues related to the role and evolution of social institutions and authority relationships, such as the family, church and community, and the effects of urbanization. Some of these theories consider the role of property in multiple ways, as a source of authority and power and as an incentive to direct behavior, such as through inheritance. Limitations of local property and expansions to acquire and develop new property led to the spreading out and corresponding dilution of family authority, and the rise of urban development and concentration of authority and power. The corresponding distribution of wealth and income gave rise to interests in promoting cultural institutions and providing services for social justice and for the poor. These services were initially provided through private religious and philanthropic efforts in a number of countries (Hall, 1987; James, 1987). Political scientists also focus on the development of nonprofits to promote social justice. Nonprofit organi- zations have been able to avoid the political and bureaucratic constraints associated with government and its property rights structure that neces- sarily was accountable to majority preferences (Douglas, 1987).
In economics, the role of private citizens developing organizations to provide services that were deemed to be not sufficiently available through markets gave rise to the public goods theory of the existence of nonprofits developed primarily by Weisbrod (1977) and Hansmann (1987a). Related to this is the excess demand theory of nonprofit (James, 1987). The theory of contract failure by private profit-making firms as a rationale for nonprofit organizations in a market economy was developed by Nelson and Krashinsky (1973). These theories have their foundations in property rights theory, through either misspecified or unenforceable legal rights.
Property rights theory is also fundamental to theories of nonprofit operation, that is, how decisions about resource use are made. Research of historians, sociologists, and political scientists demonstrate the prop- erty rights nature of major funding sources for nonprofit organizations: foundations and government provide grants to nonprofits as a way to promote their own special program goals. Grantors seek to protect their rights to a return in the form of meeting program goals through periodic reports or audits required of the nonprofit. I return to this point later in this chapter.
Source: Carroll Kathleen A. (2004), Property Rights and Managerial Decisions in For-Profit, Nonprofit, and Public Organizations: Comparative Theory and Policy, Palgrave Macmillan; 2004th edition.