The Economics of Nonprofit Organization: In Search of an Integrative Theory

:The existence of nonprofit firms has been traditionally explained by two types of theories emphasizing the market failures that these firms address and the individual motivations to found these firms. To date, these theorizing strands have been mainly disconnected from each other. To fill this gap, this paper develops an integrative theoretical understanding of nonprofit organization by demonstrating the way market failures addressed by nonprofit firms are interrelated with the motivations of nonprofit entrepreneurs. Building on the arguments of Thorstein Veblen and the theory of the division of labor, it is argued that nonprofit organization embodies partial collective self-sufficiency necessitated by the limitations of the ability of market exchange to satisfy human needs.