Nondistribution Constraint and Managerial Discretion: Disentangling the Relationship

The paper questions the viewpoint of the property rights theorists that nondistribution constraint makes nonprofit firms particularly prone to managerial shirking. The possibility that utility maximized by nonprofit managers corresponds to their firms’ missions is justified by the inability of the real-world price system to ensure the perfect match between profit maximization and utility maximization. The imperfection of this match means that some consumers’ preferences cannot be gratified through the price system and therefore require nonprofit organization. The possibility of managerial on-the-job consumption in nonprofit firms is shown to be insufficient for inferring inefficiency of their property rights structure. Copyright Springer Science + Business Media, Inc. 2006