Not-for-profit Provision of Public Services

Not-for-profit firms are greatly over-represented in the childcare, medical care, education and care for the aged sectors where service providing workers, as well as purchasers, seem to care about the level or quality of service being provided. Since all individuals who care about service levels receive nonexcludable benefits, these services have a public good element. Such care can be used to motivate employees to perform tasks beyond their strict job description. But such care only motivates effort if workers believe it affects the final level of provision. Since nonprofit status ensures management is not directly concerned with profit, or not answerable to owners with such concerns, it ensures workers’ efforts ‘matter’ by committing the firm to not expropriating ext ra worker effort to lower costs or raise profits. Nonprofit firms can thus motivate their work force in a way that for-profit firms cannot match. JEL Classification: H11, H42, D64 Acknowledgements This paper was given at a CMPO session of the Royal Economic Society Conference 2002 (University of Warwick) on ‘The Private Delivery of Public Services’. It is forthcoming in the Economic Journal (2003). The author has benefited from the comments of Paul Grout, Ian Preston and seminar participants at CMPO, Bristol and Tilburg University. Address for Correspondence Department of Economics University of British Columbia 997-1873 East Mall Vancouver British Columbia Canada V6T 1Z1 [email protected]