MGMT 602 Week 1 DB Forum 1 Thread Example

Discussion Board Forum 1: Thread

MGMT 602 Non-Profit Management, Discussion Board Forum 1: Thread

Thread by [Student Name]

The prompt and the child care center are composites standing in for the course's own forum; Hansmann's article, Weisbrod's book, Worth's textbook and Scripture are real; the requirements follow Liberty's public course guide for MGMT 602.

Hansmann (1980) argues that nonprofit organizations exist chiefly where buyers or donors cannot judge what they are getting. He calls this contract failure: when a customer cannot observe the quality of a service, a for-profit provider has both the opportunity and the incentive to cut quality and keep the difference. A nonprofit faces the same opportunity but less incentive, because the law forbids it to distribute its net earnings to the people who control it. Hansmann calls this the nondistribution constraint and treats it as the defining feature of the nonprofit form, more important than tax exemption.

Hansmann distinguishes donative nonprofits, funded by gifts, from commercial nonprofits, funded by sales of services, and he argues that contract failure explains both. A donor to an overseas relief agency cannot see whether the food arrives, and a family choosing a nursing home cannot easily judge the care a parent receives at night. Weisbrod (1977) offers a different explanation, that nonprofits provide collective goods that government supplies too little of, since government provides what the median voter wants. Worth (2017) presents both theories as partial answers, and I think the child care center at our church shows why.

The center enrolls 84 children, charges tuition close to the for-profit chain three miles away and has a waiting list of 61 families. The chain has openings. Hansmann's theory fits well: parents leave their children for nine hours and cannot see what happens in the classroom. Several parents told our director that they chose the center because they trusted it, and when asked why, they mentioned that it was run by the church rather than by a company. That is contract failure and the nondistribution constraint in plain language. Weisbrod's theory explains less here, since the center serves families of every income, not a group that government neglects.

Hansmann's theory does fall short in one way. Most of our parents could not say whether the chain is a nonprofit or a for-profit, and some assumed the church center was for-profit. Trust may come as much from the church's long presence and its people as from the legal form. In Luke's account of the shrewd steward, Jesus links the way a steward handles a little with the way the same steward will handle a great deal (English Standard Version Bible, 2001/2016, Luke 16:10). A center that keeps its promises in the hours parents cannot see earns trust that no legal form can guarantee.

For the center's leaders, the practical lesson cuts both ways. Their waiting list rests on trust, which is an asset, but it is also a vulnerability, because a single lapse in the hours parents cannot see would cost more than it would cost the chain. Hansmann's theory therefore argues for more transparency, not less: open classrooms, published inspection results and regular conversations with parents.

Classmates: in the organizations you know, does trust come from the nonprofit form itself or from the people and history behind it?

References

English Standard Version Bible. (2016). Crossway. (Original work published 2001)

Hansmann, H. B. (1980). The role of nonprofit enterprise. The Yale Law Journal, 89(5), 835-901. https://doi.org/10.2307/796089

Weisbrod, B. A. (1977). The voluntary nonprofit sector: An economic analysis. Lexington Books.

Worth, M. J. (2017). Nonprofit management: Principles and practice (4th ed.). SAGE Publications.