Accountability and nonprofit organizations: An economic perspective

A popular concern is whether the managers of nonprofit enterprise are accountable. This article considers accountability in the context of three questions. First, how do groups establish a basis on which to hold managers acountable? Second, to whom should a manager be accountable? Third, can a person or group make it important to a manager to act in the best interests of the person or group? These three questions are addressed by the fields of public choice theory, social choice theory, and principal‐agent theory, respectively. A cynical way of summarizing the seminal findings in these areas of research is that public choice theory proves that groups will be unable to form, social choice theory proves that once a group forms, it will be unable to make good decisions, and principal‐agent theory proves that a decision, once reached, is impossible to implement. A more optimistic view is that the problems identified by these research findings contain the seeds of their own solution, and that thereby valuable lessons for nonprofit managers can be adduced.