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Organizational slack in subsidized nonprofit institutions

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Abstract

Informal objectives of managers next to the formal objective of the organization can be a source of organizational slack or X-inefficiency in nonprofit organizations. If the organization is subsidized the donor can restrain organizational slack by choosing an appropriate subsidy system. Four subsidy systems are discussed: output, input, revenue and lump sum subsidy. Output subsidy reduces slack most. The ranking of input subsidy compared with lump sum subsidy depends on the elasticity of demand for output. Revenue subsidy equals input subsidy. Changes in the subsidy regime for residential adult educations in the Netherlands turn out to have been inconsistent.

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Authors and Affiliations

  1. Department of Economics and Public Finance, Faculty of Law, University of Groningen, 9700, AS Groningen

    Anton Duizendstraal & Andries Nentjes

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  1. Anton Duizendstraal
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  2. Andries Nentjes
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The authors wish to thank P.E. Eijgelshoven, D.J. Kraan and the referee of this journal for their helpful comments on earlier drafts of the paper.

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Duizendstraal, A., Nentjes, A. Organizational slack in subsidized nonprofit institutions. Public Choice 81, 297–321 (1994). https://doi.org/10.1007/BF01053235

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