Firms, Nonprofits, and Cooperatives: A Theory of Organizational Choice. CentER Discussion Paper

This paper formalizes the difference between firms, nonprofits, and coop-eratives and identifies optimal organizational choice. In a model of quality provision, we find a clear ranking of quality produced: Firms provide low-est and nonprofits highest levels of quality. Efficiency, however, depends on the competitive environment, the decision making process and technology. Cooperatives are optimal when decision making costs are low. Else, cooper-atives are increasingly dominated by either nonprofits or firms (depending on the incremental costs of quality production). Finally, changes in the competitive environment affect organizational choice: Increased competi-tion induces a shift towards firm organization and away from nonprofits