January 18, 2022
PMAP 3210: Introduction to Nonprofits
Andrew Young School of Policy Studies
Do your check-in!
Why do nonprofits even exist?
Theory part
Why do nonprofits even exist?
Theory part
Why do nonprofits even exist?
History part
Who contributed a red card at the beginning? Why?
Who contributed a red card at the beginning but then started to change their minds? Why?
Did anyone not contribute any red cards? Why?
If we're thinking of the group, everyone can do better by turning in their red cards; but each individual can earn more money by keeping their red cards and still earning money from the red cards others turn in.
Introduce public goods
How does turning in a red card make a contribution to a public good?
Make sure that they understand that EVERYONE receives a dollar from the public good, whether there are 10 people in the class or 200 people in the class: the more people there are, the greater the benefits that can be enjoyed. They should also point out that everyone receives a dollar, even those that don't contribute to it.
What it is about the characteristics of a public good that give people an incentive to free-ride?
Earnings for each person if no one contributes to the public good. Answer: Money is only earned from cards kept, since nothing is turned in. So earnings are $4 × 2 red cards kept = $8.
Earnings for each person if everyone turns in both red cards (no cards are kept by anyone). Answer (assume for this example there are 30 people in the class): Money is only earned from cards turned in, since none are kept. Since each person has 2 cards, 30 × 2 = 60 cards are turned in, which earn $1 each to every person. So each person earns 60 x $1 = $60.
Earnings for a person if he or she keeps both red cards but everyone else turns in both red cards. Answer (assume for this example there are 30 people in the class). In this case, the person earns $4 × 2 = $8 for the two red cards kept. If the other 29 people turn in both red cards, there are 29×2 = 58 red cards turned in. So everyone earns 58 x $1 = $58 from red cards turned in. So the person who keeps both red cards earns $8 + $58 = $66 (and the others in the class only earn $58).
How did communication help? Higher initial levels of contributions, followed by a decline. Why? Hard to sustain cooperation.
How do you sustain cooperation? How do you increase contributions toward public goods?
What if you could create institutions to enforce cooperation?
Non-excludable
Not possible to stop others
from using the good or service
Non-excludable
Not possible to stop others
from using the good or service
Non-rivalrous
One person using the good or service
doesn't prevent anyone else from using it
Excludable | Not excludable | |
---|---|---|
Rival | |
|
Not rival | |
|
Excludable | Not excludable | |
---|---|---|
Rival | Private goods |
|
Not rival | |
|
Excludable | Not excludable | |
---|---|---|
Rival | Private goods |
|
Not rival | Club goods |
|
Excludable | Not excludable | |
---|---|---|
Rival | Private goods |
Common pool resources |
Not rival | Club goods |
|
Excludable | Not excludable | |
---|---|---|
Rival | Private goods |
Common pool resources |
Not rival | Club goods |
Public goods |
A free public lecture at a university
Noise produced by aircraft around an airport
A forest used by the community to collect firewood
Hamilton tickets A public park
Bird/Lime/Uber scooters
The government doesn't provide
public goods or services like it should
The government doesn't provide
public goods or services like it should
Nonprofits can fill those gaps
The government doesn't provide
public goods or services like it should
Nonprofits can fill those gaps
How to recognize if a nonprofit is fixing this:
ask "could the government do that instead?"
Examples?
The private sector doesn't provide
goods or services because there's no incentive
The private sector doesn't provide
goods or services because there's no incentive
Nonprofits can fill those gaps
The private sector doesn't provide
goods or services because there's no incentive
Nonprofits can fill those gaps
How to recognize if a nonprofit is fixing this:
ask "Could/should the private sector do that instead? Why aren't they?"
Examples?
Fixing public goods issues is expensive!
Time, effort, money, resources
Fixing public goods issues is expensive!
Time, effort, money, resources
Nonprofits can work more quickly and have
more connections to communities, making it
easier and cheaper to provide services
A nonprofit providing a forum for communicating in that game - private sector won't do it
A cost or benefit to someone who
did not choose that cost or benefit
A cost or benefit to someone who
did not choose that cost or benefit
Pollution Vaccinations Cell phones and driving
A cost or benefit to someone who
did not choose that cost or benefit
Pollution Vaccinations Cell phones and driving
Internet bandwidth Research Education
A cost or benefit to someone who
did not choose that cost or benefit
Pollution Vaccinations Cell phones and driving
Internet bandwidth Research Education
Nonprofits can help mitigate negative ones
and promote positive ones
Principal-agent theory + information asymmetry
Principal-agent theory + information asymmetry
Good or service too complex for consumer to understand
Principal-agent theory + information asymmetry
Good or service too complex for consumer to understand
Consumer not competent to understand
Principal-agent theory + information asymmetry
Good or service too complex for consumer to understand
Consumer not competent to understand
Purchaser not ultimate consumer
Principal-agent theory + information asymmetry
Good or service too complex for consumer to understand
Consumer not competent to understand
Purchaser not ultimate consumer
Nonprofits have inherent trust, or "halo" effect;
no assumption that organization
is trying to exploit the consumer
Even if government is competent and can
provide public goods, nonprofits are seen as
less bureaucratic and more responsive
Even if government is competent and can
provide public goods, nonprofits are seen as
less bureaucratic and more responsive
Nonprofits…
Even if government is competent and can
provide public goods, nonprofits are seen as
less bureaucratic and more responsive
Nonprofits…
…encourage individual action for the public good
Even if government is competent and can
provide public goods, nonprofits are seen as
less bureaucratic and more responsive
Nonprofits…
…encourage individual action for the public good
…create stronger societies
Even if government is competent and can
provide public goods, nonprofits are seen as
less bureaucratic and more responsive
Nonprofits…
…encourage individual action for the public good
…create stronger societies
…respond better to the needs of diverse societies
In small groups, think of
two different nonprofits
Why do these organizations exist?
What are the differences and similarities of these organizations?
What need do these organizations fill?
Government failure? Market failure? Something else?
Would the work be more efficient if done by the government or
private companies? Or are nonprofits the best route?
Do people trust these nonprofits? Can they reach out to diverse groups
better or worse than the government or private companies?
What would happen if the nonprofit failed?
Formal organization
Non-profit-distributing
Private
Self-governing
Voluntary
Operating for public benefit
1601 Elizabethan Statute of Charitable Uses
1601 Elizabethan Statute of Charitable Uses
Formal organization | Mostly in churches |
Private | Government control |
Income sources | Mostly tax supported |
Self-governing | Government control |
Voluntary | Yes |
Public benefit | Poverty and education |
Two big changes
Two big changes
Separation of church and state
Two big changes
Separation of church and state
First amendment right of association
Two big changes
Separation of church and state
First amendment right of association
Dartmouth v. Woodward (1819)
Supreme Court's first great civil liberties case - issue of government control of nonpublic sector - Dartmouth chartered by NH state government - board expanded, NH wanted to appoint the trustees - but, this conflicted with some donor stipulation that said the board would stay the same size - Daniel Webster argued for Dartmouth (brought the audience to tears) - SC told state government to step out of the way—it didn't have ownership or control over nonprofits like Dartmouth
Formal organization | Corporations |
Private | Arbitrary state charter |
Income sources | Private sponsorship |
Self-governing | Boards |
Voluntary | Yes |
Public benefit | Poverty and education |
"Charitable purposes"
expanded to include
arts and museum
On his death, Smithson's will left his fortune to his nephew, son of his half-brother, but stipulated that if that nephew died without children (legitimate or illegitimate), the money should go "to the United States of America” to found at Washington, an establishment for the increase and diffusion of knowledge among men"
"I have seen Americans make great and real sacrifices to the public welfare and have noticed a hundred instances in which they hardly ever failed to lend faithful support to one another."
Formal organization | Religious resurgence |
Private | Arbitrary state charter |
Income sources | Donations and earned income |
Self-governing | Boards |
Voluntary | Yes |
Public benefit | Add arts and museums |
Two big changes
Two big changes
16th amendment (ratified 1913) creates a federal income tax
Two big changes
16th amendment (ratified 1913) creates a federal income tax
Tax exemption for nonprofits (1913) Tax deduction for donations (1917)
Two big changes
16th amendment (ratified 1913) creates a federal income tax
Tax exemption for nonprofits (1913) Tax deduction for donations (1917)
Definition expanded to include science and research
Formal organization | Corporations and trusts |
Private | Broad state charter |
Income sources | Donations and earned income |
Self-governing | Boards |
Voluntary | Yes |
Public benefit | Add scientific research |
War on
Poverty
Increased
federal funding
War on
Poverty
Increased
federal funding
Neoliberal
privatization
Explosive growth &
professionalization
War on
Poverty
Increased
federal funding
Neoliberal
privatization
Explosive growth &
professionalization
Rise in
secularization
Increase in non-religious nonprofits
Formal organization | Corporations |
Private | Simple charter |
Income sources | Mostly earned income |
Self-governing | Boards |
Voluntary | Yes |
Public benefit | IRS categories |
Social entrepreneurship and sector blending
Formal organization | Sector blending |
Private | Simple charter |
Income sources | Mostly earned income |
Self-governing | Boards |
Voluntary | Yes |
Public benefit | IRS categories |
Are the roles of nonprofits and government properly balanced?
What does the religious history of nonprofits mean to us today?
Why is the corporation so important to nonprofit history?
Should "charitable purpose" be broader or narrower?
Why do we feel a need to treat nonprofit money differently?
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January 18, 2022
PMAP 3210: Introduction to Nonprofits
Andrew Young School of Policy Studies
Do your check-in!
Why do nonprofits even exist?
Theory part
Why do nonprofits even exist?
Theory part
Why do nonprofits even exist?
History part
Who contributed a red card at the beginning? Why?
Who contributed a red card at the beginning but then started to change their minds? Why?
Did anyone not contribute any red cards? Why?
If we're thinking of the group, everyone can do better by turning in their red cards; but each individual can earn more money by keeping their red cards and still earning money from the red cards others turn in.
Introduce public goods
How does turning in a red card make a contribution to a public good?
Make sure that they understand that EVERYONE receives a dollar from the public good, whether there are 10 people in the class or 200 people in the class: the more people there are, the greater the benefits that can be enjoyed. They should also point out that everyone receives a dollar, even those that don't contribute to it.
What it is about the characteristics of a public good that give people an incentive to free-ride?
Earnings for each person if no one contributes to the public good. Answer: Money is only earned from cards kept, since nothing is turned in. So earnings are $4 × 2 red cards kept = $8.
Earnings for each person if everyone turns in both red cards (no cards are kept by anyone). Answer (assume for this example there are 30 people in the class): Money is only earned from cards turned in, since none are kept. Since each person has 2 cards, 30 × 2 = 60 cards are turned in, which earn $1 each to every person. So each person earns 60 x $1 = $60.
Earnings for a person if he or she keeps both red cards but everyone else turns in both red cards. Answer (assume for this example there are 30 people in the class). In this case, the person earns $4 × 2 = $8 for the two red cards kept. If the other 29 people turn in both red cards, there are 29×2 = 58 red cards turned in. So everyone earns 58 x $1 = $58 from red cards turned in. So the person who keeps both red cards earns $8 + $58 = $66 (and the others in the class only earn $58).
How did communication help? Higher initial levels of contributions, followed by a decline. Why? Hard to sustain cooperation.
How do you sustain cooperation? How do you increase contributions toward public goods?
What if you could create institutions to enforce cooperation?
Non-excludable
Not possible to stop others
from using the good or service
Non-excludable
Not possible to stop others
from using the good or service
Non-rivalrous
One person using the good or service
doesn't prevent anyone else from using it
Excludable | Not excludable | |
---|---|---|
Rival | |
|
Not rival | |
|
Excludable | Not excludable | |
---|---|---|
Rival | Private goods |
|
Not rival | |
|
Excludable | Not excludable | |
---|---|---|
Rival | Private goods |
|
Not rival | Club goods |
|
Excludable | Not excludable | |
---|---|---|
Rival | Private goods |
Common pool resources |
Not rival | Club goods |
|
Excludable | Not excludable | |
---|---|---|
Rival | Private goods |
Common pool resources |
Not rival | Club goods |
Public goods |
A free public lecture at a university
Noise produced by aircraft around an airport
A forest used by the community to collect firewood
Hamilton tickets A public park
Bird/Lime/Uber scooters
The government doesn't provide
public goods or services like it should
The government doesn't provide
public goods or services like it should
Nonprofits can fill those gaps
The government doesn't provide
public goods or services like it should
Nonprofits can fill those gaps
How to recognize if a nonprofit is fixing this:
ask "could the government do that instead?"
Examples?
The private sector doesn't provide
goods or services because there's no incentive
The private sector doesn't provide
goods or services because there's no incentive
Nonprofits can fill those gaps
The private sector doesn't provide
goods or services because there's no incentive
Nonprofits can fill those gaps
How to recognize if a nonprofit is fixing this:
ask "Could/should the private sector do that instead? Why aren't they?"
Examples?
Fixing public goods issues is expensive!
Time, effort, money, resources
Fixing public goods issues is expensive!
Time, effort, money, resources
Nonprofits can work more quickly and have
more connections to communities, making it
easier and cheaper to provide services
A nonprofit providing a forum for communicating in that game - private sector won't do it
A cost or benefit to someone who
did not choose that cost or benefit
A cost or benefit to someone who
did not choose that cost or benefit
Pollution Vaccinations Cell phones and driving
A cost or benefit to someone who
did not choose that cost or benefit
Pollution Vaccinations Cell phones and driving
Internet bandwidth Research Education
A cost or benefit to someone who
did not choose that cost or benefit
Pollution Vaccinations Cell phones and driving
Internet bandwidth Research Education
Nonprofits can help mitigate negative ones
and promote positive ones
Principal-agent theory + information asymmetry
Principal-agent theory + information asymmetry
Good or service too complex for consumer to understand
Principal-agent theory + information asymmetry
Good or service too complex for consumer to understand
Consumer not competent to understand
Principal-agent theory + information asymmetry
Good or service too complex for consumer to understand
Consumer not competent to understand
Purchaser not ultimate consumer
Principal-agent theory + information asymmetry
Good or service too complex for consumer to understand
Consumer not competent to understand
Purchaser not ultimate consumer
Nonprofits have inherent trust, or "halo" effect;
no assumption that organization
is trying to exploit the consumer
Even if government is competent and can
provide public goods, nonprofits are seen as
less bureaucratic and more responsive
Even if government is competent and can
provide public goods, nonprofits are seen as
less bureaucratic and more responsive
Nonprofits…
Even if government is competent and can
provide public goods, nonprofits are seen as
less bureaucratic and more responsive
Nonprofits…
…encourage individual action for the public good
Even if government is competent and can
provide public goods, nonprofits are seen as
less bureaucratic and more responsive
Nonprofits…
…encourage individual action for the public good
…create stronger societies
Even if government is competent and can
provide public goods, nonprofits are seen as
less bureaucratic and more responsive
Nonprofits…
…encourage individual action for the public good
…create stronger societies
…respond better to the needs of diverse societies
In small groups, think of
two different nonprofits
Why do these organizations exist?
What are the differences and similarities of these organizations?
What need do these organizations fill?
Government failure? Market failure? Something else?
Would the work be more efficient if done by the government or
private companies? Or are nonprofits the best route?
Do people trust these nonprofits? Can they reach out to diverse groups
better or worse than the government or private companies?
What would happen if the nonprofit failed?
Formal organization
Non-profit-distributing
Private
Self-governing
Voluntary
Operating for public benefit
1601 Elizabethan Statute of Charitable Uses
1601 Elizabethan Statute of Charitable Uses
Formal organization | Mostly in churches |
Private | Government control |
Income sources | Mostly tax supported |
Self-governing | Government control |
Voluntary | Yes |
Public benefit | Poverty and education |
Two big changes
Two big changes
Separation of church and state
Two big changes
Separation of church and state
First amendment right of association
Two big changes
Separation of church and state
First amendment right of association
Dartmouth v. Woodward (1819)
Supreme Court's first great civil liberties case - issue of government control of nonpublic sector - Dartmouth chartered by NH state government - board expanded, NH wanted to appoint the trustees - but, this conflicted with some donor stipulation that said the board would stay the same size - Daniel Webster argued for Dartmouth (brought the audience to tears) - SC told state government to step out of the way—it didn't have ownership or control over nonprofits like Dartmouth
Formal organization | Corporations |
Private | Arbitrary state charter |
Income sources | Private sponsorship |
Self-governing | Boards |
Voluntary | Yes |
Public benefit | Poverty and education |
"Charitable purposes"
expanded to include
arts and museum
On his death, Smithson's will left his fortune to his nephew, son of his half-brother, but stipulated that if that nephew died without children (legitimate or illegitimate), the money should go "to the United States of America” to found at Washington, an establishment for the increase and diffusion of knowledge among men"
"I have seen Americans make great and real sacrifices to the public welfare and have noticed a hundred instances in which they hardly ever failed to lend faithful support to one another."
Formal organization | Religious resurgence |
Private | Arbitrary state charter |
Income sources | Donations and earned income |
Self-governing | Boards |
Voluntary | Yes |
Public benefit | Add arts and museums |
Two big changes
Two big changes
16th amendment (ratified 1913) creates a federal income tax
Two big changes
16th amendment (ratified 1913) creates a federal income tax
Tax exemption for nonprofits (1913) Tax deduction for donations (1917)
Two big changes
16th amendment (ratified 1913) creates a federal income tax
Tax exemption for nonprofits (1913) Tax deduction for donations (1917)
Definition expanded to include science and research
Formal organization | Corporations and trusts |
Private | Broad state charter |
Income sources | Donations and earned income |
Self-governing | Boards |
Voluntary | Yes |
Public benefit | Add scientific research |
War on
Poverty
Increased
federal funding
War on
Poverty
Increased
federal funding
Neoliberal
privatization
Explosive growth &
professionalization
War on
Poverty
Increased
federal funding
Neoliberal
privatization
Explosive growth &
professionalization
Rise in
secularization
Increase in non-religious nonprofits
Formal organization | Corporations |
Private | Simple charter |
Income sources | Mostly earned income |
Self-governing | Boards |
Voluntary | Yes |
Public benefit | IRS categories |
Social entrepreneurship and sector blending
Formal organization | Sector blending |
Private | Simple charter |
Income sources | Mostly earned income |
Self-governing | Boards |
Voluntary | Yes |
Public benefit | IRS categories |
Are the roles of nonprofits and government properly balanced?
What does the religious history of nonprofits mean to us today?
Why is the corporation so important to nonprofit history?
Should "charitable purpose" be broader or narrower?
Why do we feel a need to treat nonprofit money differently?