Public Good Theories of the Nonprofit Sector

Abstract

Burton A. Weisbrod’s (1975) “Toward a theory of the voluntary nonprofit sector in a three-sector economy” is a cornerstone in the literature on the economics of nonprofit organizations. In the Weisbrod model nonprofit organizations satisfy a demand for public goods, which is left unfilled by government provision. The government satisfies the demand of the median voter and therefore provides a level of the public good less than some citizens’—with a level of demand greater than the median voter’s—desire. This unfilled demand for the public good is satisfied by nonprofit organizations. These nonprofit organizations are financed by the donations of citizens who want to increase the output of the public good.