The Rationale for Exempting Nonprofit Organizations from Corporate Income Taxation*

Although most types of nonprofit corporations have been exempted from the federal corporate income tax since that tax was first adopted, we continue to lack a clear rationale for the exemption. This was perhaps understandable and acceptable when the nonprofit sector was small and nonprofit organizations were engaged largely in activities of a traditionally charitable nature. Today, however, the nonprofit sector represents a substantial and growing share of the national economy. Large concentrations of nonprofits can be found in a number of vital and expanding service industries, including education, health care, research, the media, and the arts. Nonprofit firms now commonly provide goods and services in direct competition with profit-seeking firms, and in many cases increasingly resemble their for-profit competitors in their manner of organization and operation. The traditional criteria for applying the exemption are, as a result, being stretched beyond recognition, so that the absence of an underlying rationale for those criteria, and indeed for the exemption in general, is becoming increasingly conspicuous

The Coase Proposition, Information Constraints, and Long Run Equilibrium: Comment

In a recent paper in this Review, William Schulze and Ralph d\u27Arge employ a partial equilibrium model of two competitive industries with an externality to analyze the well-known Coase proposition. In particular, they compare both the short-run and long-run efficiency implications of (a) the unadjusted externality case, (b) a Pigo- vian tax on the output of the firms generat- ing the external cost (the emitting firms), (c) a rule making the emitting firms liable to the receptor firms, and (d) a situation in which the emitting firms incur no liability, but firms in the two industries are free to bargain costlessly concerning the externality. The analysis in general is illuminating. However, their conclusions regarding the impact of a liability rule, both in the short run and in the long run, appear to be in error. This is of particular significance be- cause, as the authors point out, it is precisely the impact of a liability rule that has been at the center of the controversy over the Coase proposition

Nonprofit Enterprise in the Performing Arts

This article explores the reasons for the current dominance of the nonprofit form in the high-culture performing arts, and concludes that this development is a response to the need for price discrimination in that sector. The article develops a model of a nonprofit performing arts organization based on this analysis, and employs the model to explore, first, the consequences to be expected if such an organization adopts any of various plausible objective functions, and second, the circumstances in which subsidies to such an organization are justified and the way in which such subsidies should be structured

The Economics and Ethics of Markets for Human Organs

In 1984, federal legislation outlawing payment for human organs for transplantation was adopted after only cursory discussion of the underlying policy issues. More considered analysis suggests that this prohibition may be overly broad. It appears possible to design suitably regulated market-type approaches to the acquisition and allocation of cadaveric organs (and perhaps of organs from living donors as well) that will be neither unduly offensive to ethical sensibilities nor easily abused and that may yield significant improvements over the existing system of organ procurement, which presents important ethical and practical problems of its own. Moreover, whatever ultimate judgment we reach concerning the merits of markets for transplantable organs, analysis of the sources of the initial moral resistance to the commercialization that lies behind measures such as the 1984 legislation offers insights into the respective roles of market and nonmarket institutions in general

What Determines Firm Boundaries in Biotech?

Walter W. Powell [1996] gives us a fascinating and insightful description of complex industry. His central theme is that, in contrast to the old-line pharma- ceutical industry, which is dominated by a small number of large firms that are relatively self-sufficient, the biotechnology industry is populated with a large number of small firms that collaborate with each other extensively and intimately. This pattern presents two broad questions for organizational theorists. First, what determines firm boundaries? In particular, why is there so much less vertical and horizontal integration in the new biotechnology industry than the old-line pharmaceutical industry? Second, what is the nature of the contractual relationships between the many firms in this industry? Powell addresses both of these questions, but gives principal emphasis to the second. As to the first question - what determines firm boundaries? - Powell offers some intriguing observations but engages in little explicit theorizing. In my comments I shall reverse the emphasis, focusing principally on the determinants of the size and scope of firms. Of course, the two questions are closely related. In particular, the ability to adapt institutions from academic biology as mechanisms for managing interfirm contracting apparently contributes to the viability of small firms in biotech

The Current State of Law-and- Economics Scholarship

This paper is far less ambitious than its title might suggest. It would be impossible to offer a comprehensive and critical survey of law-and-economics scholarship in a single short essay. My objective here is simply to develop some broad themes in an effort to provide some perspective on the law-and-economics literature in general and to stimulate further thought and discussion

The Role of Nonprofit Enterprise

Private nonprofit institutions account for a sizable and growing share of our nation\u27s economic activity. The sectors in which these institutions are most common-education, research, health care, the media, and the arts-are vital elements in the modern economy. Moreover, these are sectors that present particularly pressing and difficult problems of public policy. The existing literature in law and economics, however, has largely overlooked nonprofit institutions; while we are reasonably well supplied with positive and normative perspectives on both profit-seeking and governmental organizations, to date there has been extraordinarily little effort to understand the role of nonprofits

A Theory of Status Organizations

There are many instances in which an individual\u27s decision to patronize a firm depends not just upon the quality and price of the goods or services offered by the firm, but also upon the personal characteristics of the other patrons of the firm. Social clubs, such as country clubs, are conspicuous examples. The socioeconomic status and other personal attributes of a country club\u27s membership are likely to be quite as important to a prospective member as are the quality of the golf course, the tennis courts, and the food served in the club diningroom. Private educational institutions provide another example: students commonly select a college not only on the basis of the quality of the instructional program, but also with an eye to the intelligence, earlier education, social attractiveness, athletic ability, and future promise of its other students