Economizing Non-Profits

Source: EconLog
by Isadore Johnson

“Many people mistake the organizational form of ‘nonprofits’ as being free from economic considerations. If the organization is not run by a profit-motive, it surely will act ethically and in accordance with the mission statement of the organization. In a sense, people view nonprofits as exempt from the regular rules of life in a market economy. However, nonprofits also have a vested interest in organizational survival. The faulty belief that without profits, people will no longer act in their self-interests, drives operational inefficiencies. Many think that since the organization is not trying to obtain money beyond operating expenses (which is in itself a dubious assumption), that the actions of the people within the organization will solely focus on achieving the organization’s stated goals. However, there are incentives for delaying the achievement of these goals as a result of not wanting to become unemployed or take a pay cut.” (07/23/22)