For-profit and non-profit firms: Limits of the simple theory of attenuated property rights

Abstract

This paper argues that the simple theory of attenuated property rights cannot help us understand differences between for-profit and non-profit enterprises. The focus on ‘missing shareholders’ overlooks the reality of capital markets, the manifold sources of claims on residuals, and the roles of voting and market pressures. Furthermore, the empirical evidence in one regulated industry shows that for-profit enterprises are generally less efficient than their non-profit counterparts. A new approach to research is necessary that considers both internal control mechanisms and the operation of non-profit firms in politically and economically defined markets.