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10 - Sector Theorists Should Revisit the Role of Information

from Part II - Reflections and Refinements

Published online by Cambridge University Press:  11 January 2024

By
George E. Mitchell  and
Jason Coupet
Edited by
Eva Witesman  and
Curtis Child
Eva Witesman
Affiliation:
Brigham Young University, Utah
Curtis Child
Affiliation:
Brigham Young University, Utah
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Summary

The theory of the nonprofit institutional form introduced by Henry Hansmann more than 40 years ago proposed that informational problems, specifically information asymmetry, explains the essential defining feature of the nonprofit organization – the so-called nondistribution constraint. While the conventional argument holds that an asymmetry of information arises due to intrinsic, hard-to-measure attributes of nonprofit outputs, this chapter argues instead that informational problems arise because private purchasers fail to sufficiently value the positive externalities of information. In short, information is a social good, rather than a private good, and neither purchasers (donors) nor producers (nonprofits) have sufficiently strong incentives to systematically incur the costs and risks associated with generating information. The undervaluing of information by private parties results in a symmetry of ignorance that may lead to “benefit failure” in the form of foregone social impact. This type of failure is induced by transaction, allocative, and production inefficiencies resulting from the symmetry of ignorance.

Keywords

information structureinformation asymmetrynonprofit theorycontract failurebenefit failureefficiencysocial goodwarm glowsymmetry of uninformednesssymmetry of ignorance
Type
Chapter
Information
Reimagining Nonprofits
Sector Theory in the Twenty-First Century
 , pp. 191 - 214
Publisher: Cambridge University Press
Print publication year: 2024

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