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
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