ABSTRACT
A third approach, developed by HANSMANN and perfected by BEN-NER & GUI, is based on the notion of information asymmetries in market economies. In many transactions, consumers lack the information they need to judge the quality of the goods or services they are purchasing. This can occur because the purchaser is not the same person as the consumer (for example, the purchase of nursing home care by children for an elderly parent), because the service in question is inherently complex and difficult to assess, or the inputs of some are difficult to match with the benefits procuring to many. In such cases, purchasers or members seek alternative bases for trust in leadership performance or the quality of the resulting service. Because of the “non-distribution constraint,” i.e. the prohibition on distribution of profits to owners, nonprofits may be trustworthier and more likely to serve client or member needs. Accordingly, non-profit status functions as a proxy for the market, signalling trust in the quality of output.
