Harvard Professor: Less competition between nonprofits ==> Less efficient output
Date: Monday April 29 2002, @09:36AM
Topic: ICANN Staff and Structure

BenEdelman writes "I recently stumbled onto "The Governance of Not-for-Profit Firms, a draft article by Professor Ed Glaeser of the Harvard University Department of Economics. This is a fascinating piece in its own right -- continuing Glaeser's prolific work. (I especially recomment the entertaining and insightful "Not-For-Profit Entrepreneurs" which "derive[s] conditions under which completely self-interested entrepreneurs opt for not-for-profit status"). But since it so clearly relates to topics considered by current ICANN restructuring efforts, I thought folks here might find it helpful.

Glaeser's abstract follows:"

Many factors including incentive-pay, powerful shareholders, and takeover threats push for-profits managers towards maximizing shareholder value. One of the most striking factors about non-profit firms is that they have no comparable governance institutions, and the only check on managers are boards that are themselves rarely responsible to anyone outside the firm. This essay discusses the implications of these weak governance institutions on non-profit behavior. A primary implication is that non-profits will often evolve into organizations that resemble workers’ cooperatives. The primary check on this tendency is the need of the organizations to compete in outside markets. After presenting a model of non-profit behavior, I look at four different sectors (hospitals, museums, universities and the church). All display significant signs of capture by elite workers, but all still perform their basic missions reasonably, probably because of market competition.

Applying this reasoning to ICANN: The greater the extent to which ICANN lacks competition from similar institutions, the lesser the incentive for ICANN to produce efficiently or effectively. Sounds obvious, on some level, but Glaeser's rigorous derivation and theoretical support may be of interest to some.

Disclaimer: I took a class from Glaeser, wrote a paper for him, and think he's a great guy. (But I don't have any ongoing relationship with him.)

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