ABSTRACT
The emergence of non-profit organizations and social enterprises has been explained mainly by their ability to overcome market and government failures in providing general-interest services, especially in the areas of social welfare, health, and education. The quality of services provided by for-profit firms tends to be low, and public agencies are exposed to the failures of the electoral system in that services tend to be supplied in response to the preferences of the median voter. Not-for-profit organizations-both traditional donative non-profits and social enterprises-help diversify the supply and increase the quality of services, improving the overall well-being of the population. The literature has identified the non-profit distribution constraint as the main mechanism for reducing asymmetric information between parties and attracting free resources like donations and volunteers. Indeed, this constraint helps to ensure that resources are employed for the interests of stakeholders other than the owners of the organization and not for individual opportunistic purposes. Moreover, the distribution constraint encourages greater investment in the quality of services, limiting the opportunism of organizations and reducing asymmetric information about quality. The overall advantage of the non-profit distribution constraint is that it fosters fiduciary relationships, especially between organizations and stakeholders exposed to problems of information asymmetry (Hansmann 1996). Less attention has been devoted to other competitive advantages of not-forprofit organizations. Some authors have recognized the contribution these organizations make by increasing the quantity of services provided, but they have focused on generating donations (Weisbrod 1988) or involving consumers (BenNer and Van Hoomissen 1991). Some studies have emphasized the net increase in employment generated by not-for-profits and the opportunities created for people who are difficult to employ (see Chapters 3 and 6 of this volume). However, empirical analyses have rarely investigated the ability of not-forprofits to guarantee x-efficiency and gather resources other than donations, especially through market exchanges. In addition, some empirical studies of specific areas of activity have shown that not-for-profits perform better than public agencies and for-profit firms.1
