This chapter explores interactions between aggregate economic variables (including income, GDP, wealth, economic growth rates, and income inequality) and the nonprofit sector (including revenues, costs, expenditures, entry, and exit). Nonprofit organizations probably affect macroeconomic variables, but very little is known about the size and direction of such effects. The largest problem in existing studies is that they do not clearly state their counterfactual assumptions about how other institutions would react to a reduction in the nonprofit role. More is known about the effect of the macroeconomy on the density and economic impact of nonprofits. Revenues and expenditures follow the business cycle, but the need for nonprofit services in some subsectors runs counter to the business cycle. This mismatch causes higher costs and service gaps, but is inherent in regulations, donor responses, and current nonprofit managerial cultures.
Richard Steinberg and Brian Galle
This chapter addresses a range of questions and topics that have engaged economists in relation to the not-for-profit sector since the pioneering work of Burton Weisbrod and Henry Hansmann was first published several decades ago. The chapter discusses the non-distribution constraint (usually viewed by economists as the sine qua non of the not-for-profit sector), the so-called ‘three failures’ view of the role of the sector in a modern mixed economy, numerous regulatory questions about not-for-profits and those who support them, and other matters such as the optimal scale and diversity of not-for-profit organizations. The chapter provides a snapshot of the state of economic scholarship on the sector today, and points the way to future research in that tradition.