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THE EFFECT OF OWNERSHIP IN NGOS’ COMMERCIAL VENTURES
Author(s) -
LY Pierre
Publication year - 2012
Publication title -
annals of public and cooperative economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.526
H-Index - 37
eISSN - 1467-8292
pISSN - 1370-4788
DOI - 10.1111/j.1467-8292.2012.00459.x
Subject(s) - incentive , commercialization , business , profit (economics) , investment (military) , work (physics) , industrial organization , finance , market economy , marketing , economics , microeconomics , mechanical engineering , politics , political science , law , engineering
Amidst pressure to become self‐financing, Non‐Governmental Organizations (NGOs) have become increasingly involved in profit‐generating business ventures. Because NGOs are traditionally financed by donations with the expectation that they focus on their social mission, the commercialization of NGOs has generated criticism. This paper examines the effect of ownership on investment incentives in NGOs’ commercial ventures, using an incomplete contracts framework. NGO‐ownership helps minimize the tension between primary social mission and managerial decisions. However, external ownership provides better incentives to invest in mission‐enhancing innovations. Finally, because relationships with firms are repeated, NGOs may use relational contracts to align their ventures’ incentives. However, such contracts need to be credible to work.