Handbook of Research on Nonprofit Economics and Management
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Handbook of Research on Nonprofit Economics and Management

Edited by Bruce A. Seaman and Dennis R. Young

Nonprofit organizations are arguably the fastest growing and most dynamic part of modern market economies in democratic countries. This Handbook explores the frontiers of knowledge at the intersection of economics and the management of these entities. The authors review the role, structure and behavior of private, nonprofit organizations as economic units and their participation in markets and systems of public service delivery, assess the implications of this knowledge for the efficient management of nonprofit organizations and the formulation of effective public policy, and identify cutting edge questions for future research.
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Chapter 9: Modeling Nonprofit Behavior

Patricia Hughes and William Luksetich


Patricia Hughes and William Luksetich Introduction Among William Baumol’s many contributions to economic science is a presentation titled ‘What can economic theory contribute to managerial economics?’ (1961). Baumol draws a clear distinction between biological research and economic research using the life cycle of the fruit fly to illustrate. Recognizing that a clock mechanism exists in many species, biologists can gather substantial amounts of data in controlled experiments to measure the timing of the animal’s development. With the aid of a mathematician, they can find a mathematical equation to fit the development of the fruit fly allowing predictions accurate enough to confirm the periodicity observed in this and many other species. The biologist has substantial amounts of data and a good mathematical model, but no analytical explanation of the observed behavior. The economist, on the other hand, is an expert model builder who lacks data. The economist recognizes the basic structure of a problem by focusing on the main elements and carefully outlines the interrelationships between those components. Economists build models based on ideas and intuition, not on observed data. The general economic models of firm behavior are often abstract and hard to implement, yet they provide insight into human behavior. Every organization may face a unique situation requiring a specific model to highlight it. This is precisely the reason that economic theory is so important to managerial decision making. Economists offer managers a set of tools and approaches to solve a myriad of problems mainly because the rigor of...

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