Question

Which economic theory, or economic-based theory, explains why nonprofits ight be a preferable alternative to for-profit companies for servii=ng young children (day-care), the cognitively impaired (disability services), and the elderly (senior centers)? Please explain your answer.

Answer 1

Market-failure theory: Market is good only for providing private goods and not public goods. Civil societies fill in this gap and supplment the work of the government in providing public goods.

Contract theory. When it is difficult to assess quality of services provided, non-profits fill in the gap. Public may trust non-profits more under these circumstances.

Government failure: When the government fails to provide services of a social nature, non-profits fill in the gap.