The nonprofit theory revisited : the advantages and challenges for the third sector

In my master thesis in economics, I draw attention to nonprofits with core focus on the ones that are operating in the business sector. I aim to investigate how nonprofits functions, and how they differ from other organizations. The main question I ask is: ‘What are the pros and cons of nonprofits, and in what ways do they differ from other organizations?’ Furthermore, I raise three probed further: ‘What are the roles of the nonprofit sector, and why does it play these roles?’ ‘What do nonprofits do when they are not maximizing profit, and which other aims are relevant?’ ‘How does the interior incentive structure function when the organization has other aims than profits, and there are no owners to discipline the management?’ After pointing out my questions, I sketch the organizational map for forprofit, public and nonprofit organizations, before I give a brief introduction to the nonprofit landscape. Thereafter, I investigate the three most common demand approaches to nonprofits; namely the public good approach, the trust approach and the stakeholder approach. In relation to the public good approach, I show how green worker theory could be integrated to the formal model framework. I also suggest an integration of green consumer theory in the trust approach. Further on, I examine three supply approaches; the entrepreneurship approach, the voluntarily failure approach and the organizational behavioral approach. After reviewing the prevailing theories, I continue by discussing the potential problems of moral hazard and rent-seeking, before I display how these can be overcome both with and without behavioral factors, inter alia by my own game of internal control. Towards the end of the thesis, I turn to the financial side of the nonprofits, comprising sources of financing and potential financial rigidity. I discuss the lack of financial flexibility and how the problem can be countered, which is one of the most neglected realms in the prevailing nonprofit literature. I conclude that nonprofits could be the best response to governing and market failures, both on the demand side and the supply side. Moreover, nonprofits seem to achieve comparative advantages contra the forprofits and the public enterprises under certain circumstances, by their combination of inability to distribute profits, political autonomy and social aims; and for some nonprofit organizational designs; their leeway for stakeholder control. These features may inter alia enable nonprofits to attract green workers, provide public goods that cut across political priorities and achieve more trustworthiness in the provision of unverifiable goods