ABSTRACT
This chapter demonstrates that theories of the nonprofit sector are diverse and arise from a wide variety of disciplinary perspectives, including economics, sociology, and political science. It describes several theories that explain the existence of the nonprofit sector. The chapter explains several non-economic theories of the nonprofit sector. Three theoretical frameworks arising from economic principles that help to better understand the existence of the nonprofit sector include market failures, government failure, and government-nonprofit partnership theory. The chapter discusses three common types of market failures —failures to supply collective goods, information asymmetries, and externalities—which lead to governments and sometimes nonprofit organizations stepping in to correct the problems associated with a for-profit organization providing the good or service. It also explains several non-economic theories of the nonprofit sector. The several key non-economic theories include the theory of the commons, mediating theory, pluralism, and collective action.
