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Overcoming the Cause of Failure and the Role of Issue Salience: Toward a Comprehensive Theory for Nonprofit Activity and Competition in a Three-Sector Economy

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  • Faulk Lewis

    (American University, Washington, DC, USA)

Abstract

This paper extends the theoretical framework of nonprofit activity in three-sector economies. Perspectives from existing theories on nonprofit organizations and the agenda setting literature are simultaneously considered. The nonprofit form provides one solution to the causes of market failure that are inherent to the different classes of goods discussed by previous theory. However, issue salience can lead to public policies that correct market failures. Such policies can lead to greater competition for tax-supported funding and to for-profit entry. This combined framework allows for the integration of the various theories on the existence of nonprofit organizations under one theoretical lens. It also yields a framework to empirically analyze industry dynamics and inter-organizational competition specifically within nonprofit and mixed-sector markets. The temporal variation and relative strength of issue salience in various mission areas in which nonprofits participate are particularly considered. This theoretical perspective leads to several important implications for industrial structure, nonprofit competition for resources and market share, public policy, advocacy, contracting, and public–private partnerships as the issues nonprofits address evolve over time.

Suggested Citation

  • Faulk Lewis, 2014. "Overcoming the Cause of Failure and the Role of Issue Salience: Toward a Comprehensive Theory for Nonprofit Activity and Competition in a Three-Sector Economy," Nonprofit Policy Forum, De Gruyter, vol. 5(2), pages 335-365, October.
    • Handle: RePEc:bpj:nonpfo:v:5:y:2014:i:2:p:31:n:2
    DOI: 10.1515/npf-2014-0004
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    References listed on IDEAS

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    5. Lakdawalla, Darius & Philipson, Tomas, 2006. "The nonprofit sector and industry performance," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1681-1698, September.
    6. Jeremy Thornton, 2008. "Competition, Contractibility, and the Market for Donors to Nonprofits," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 24(1), pages 215-246, May.
    7. Feigenbaum, Susan, 1987. "Competition and Performance in the Nonprofit Sector: The Case of U.S. Medical Research Charities," Journal of Industrial Economics, Wiley Blackwell, vol. 35(3), pages 241-253, March.
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