"The Role of Nonprofit Enterprise" in 1993: Hansmann Revisited

Abstract

Henry Hansmann's "The Role of Nonprofit Enterprise" (1980) has had a seminal influence on analyses of the law and economics of the nonprofit sector Hansmann argues that the "nondistribution constraint" makes nonprofits an efficient solution infields characterized by contract failure. This article surveys the literature that has extended, criticized, and tested Hansmann's ideas. We add our own criticisms and extensions, with particular attention to the case of hospitals, where nonprofits' tax exemptions have undergone an attack with little regard for Hansmann's theories. We conclude that despite some limitations and qualifications, the idea of contract failure remains central to the assessment of the role of nonprofit organizations and to the design of public policies affecting non-profits.