Title

The Effect of Ownership in NGOs’ Commercial Ventures

Document Type

Article

Publication Date

6-2012

Publication Title

Annals of Public and Cooperative Economics

Department

International Political Economy

Abstract

Amidst pressure to become self-financing, Non-Governmental Organizations (NGOs) have become increasingly involved in profit-generating business ventures. Because NGOs are traditionally financed by donations with the expectation that they focus on their social mission, the commercialization of NGOs has generated criticism. This paper examines the effect of ownership on investment incentives in NGOs’ commercial ventures, using an incomplete contracts framework. NGO-ownership helps minimize the tension between primary social mission and managerial decisions. However, external ownership provides better incentives to invest in mission-enhancing innovations. Finally, because relationships with firms are repeated, NGOs may use relational contracts to align their ventures’ incentives. However, such contracts need to be credible to work.

Volume

83

Issue

2

pp.

159-179

ISSN

1370-4788

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