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Quality, reputation and the choice of organizational form

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Vlassopoulos, Michael

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Abstract "This paper revisits the hypothesis that nonprofit organizations emerge in markets that are characterized by contractual incompleteness because they ensure consumers against opportunistic behavior. We extend the Glaeser and Shleifer (2001) framework which studies an entrepreneur's optimal choice of organizational form and service quality when quality is non-contractible into a repeated interaction setting. The main result is that when reputations can be sustained, then for-profit status is the preferred organizational form and high quality services are ensured. This finding suggests that existing explanations of nonprofit organizations that focus entirely on contractual imperfections in the producer/consumer relationship may be inadequate." [author's abstract]
Keywords reputation
Classification Applied Psychology; Basic Research, General Concepts and History of Economics
Free Keywords Nonprofit Status; Contractual Incompleteness
Document language English
Publication Year 2009
Page/Pages p. 515-527
Journal Journal of Economic Behavior & Organization, 71 (2009) 2
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)