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The efficiency of the non-profit enterprise: constitutional ideology, conformist preferences and reputation

Lorenzo Sacconi ()

LIUC Papers in Ethics, Law and Economics from Cattaneo University (LIUC)

Abstract: According to one thesis the non profit enterprise (in short NPE) is able to attract ideological entrepreneurs and workers (Rose-Ackerman 1996). In fact I prove that without the ideological element, a simple game between the entrepreneur, worker and beneficiary is condemned to an opportunistic equilibrium, beneficial to the internal members of the organization but detrimental to the beneficiary. Thus the NPE does not better than its for profit counterpart. In my model ideologues, both entrepreneurs and workers, share a principle of justice seen as the constitutional ideology of the NPE, agreed upon in an hypothetical ex ante bargaining game. The constitutional principle provides an independent source of motivation (a source of utility) of the players, in so far as they believe in the reciprocity of conformity to the ideology by all the participants. I call this conformity-based utility “ideological”, and I see it as the representation of a preference for expected conformity to the given constitutional principle. The philosophical underpinnings of this reform of the players' utility functions in worked out by distinguishing two concepts of preferences of the Self: consequentialist preferences and conformist preferences. The latter are preferences for those actions that are part of states of affairs described in terms of interdependent actions conforming to an abstract norm or principle, which become effective once the preferences' holder does expect that the other players do they part in that state of affairs and they do expect that himself do his part in the same state of affairs. What result is that a player's ideological utility depends on the expectation of deontological modes of behaviour followed by all the participants, himself included. On this basis it is possible to overcome personal incentives to embrace opportunistic behaviour, so that the proper Non-profit Enterprise emerges. It is proved that in the “social enterprise game” amongst the member of the organisation there exists an organisational equilibrium minimising transaction costs to the beneficiaries. At last, this equilibrium rests on the emergence of an expectations system of reciprocal conformity to the constitutional ideology. As the existence - not even the selection – of the internal organizational equilibrium rests heavily on the existence of the appropriate system of reciprocal expectation, the problem of how we can justify the emergence of the appropriate system of beliefs must be underlined. Here is where the explicit moral codes of the NPE enters the scene. I see the code of ethics as the building block for deriving a reputation equilibrium between the NPE as a whole and its external stakeholders within a repeated game, whose stage-game is the typical game of trust played under incomplete knowledge and unforeseen contingencies. At last the conformist-motivation model and the reputation model under unforeseen contingencies are shown to play together in a mutually supporting explanation of the efficiency of the NPE.

Pages: 34 pages
Date: 2002-07
New Economics Papers: this item is included in nep-ent
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Published in LIUC papers, no.110, 2002 - Etica, diritto ed economia 7

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