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37 Nonprofit & Voluntary Sector Q. 5 (2008)

handle is hein.journals/npvolsq37 and id is 1 raw text is: The Transaction Cost Theory of the Nonprofit Firm: Beyond Opportunism Vladislav Valentinov Leibniz Institute of Agricultural Development in Central and Eastern Europe Building on the transaction cost theory of the for-profit firm, the article argues that the transaction cost-economizing role of the nonprofit firm has two distinct dimensions. One of them consists of reducing the cost of searching for, processing, and communi- cating information and the other minimizes opportunistic behavior by means of align- ing incentives of concerned stakeholders. So far, the transaction cost theory of the nonprofit firm has been emphasizing the second dimension while largely ignoring the first one. The article fills this gap by demonstrating that nonprofit firms are able to economize on transaction cost not only by minimizing opportunism but also byfacili- tating cooperation among those stakeholders who derive utility from contributing to the realization of their nonprofit firm's missions and hence would not be interested in opportunistic behavior. The article concludes by emphasizing the complementarity of the two dimensions of the nonprofit firm's transaction cost-economizing role. Keywords: nonprofit firm; transaction cost; information cost; opportunism The concept of transaction cost has figured prominently in a number of important theoretical explanations of the existence of the nonprofit firm in a market economy. The economic role of the nonprofit firm has been shown to consist of ensuring a more efficient economizing on transaction cost than could be achieved by alternative institutional arrangements for certain types of transactions characterized by information asymmetry (Krashinsky, 1986). The classic examples of these transactions include donative financing (Fama & Jensen, 1983; Hansmann, 1980) and procurement of products and services Note: This research has been supported by the Marie Curie Incoming International Fellowship of the Sixth Framework Program of the European Community (Contract No. MIF1-CT-2005- 514036). The author is grateful to the anonymous reviewers for valuable comments. The views expressed in the article are those of the author only. The European Commission is not liable for any use that may be made of the information contained in this publication. Nonprofit and Voluntary Sector Quarterly, vol. 37, no. 1, March 2008 5-18 DOI: 10.1177/0899764007300408 @ 2008 Association for Research on Nonprofit Organizations and Voluntary Action 5

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