An organization’s form determines its economic success. Although organizational form appears fixed for many organizations, it can also change. For instance, in 2006, the New York Stock Exchange (NYSE) and Mastercard, two major financial institutions, converted from cooperatives to investor-owned firms. Visa, another major credit card operator, swiftly followed suit, completing its demutualization process with an IPO in 2008. These specific events continue the trend of organizational change in the financial sector, retailing, and professional services. On the other hand, the percentage of for-profit nursing homes in the United States has decreased by 23 percent between 1985 and 1995, while nonprofit-operated homes increased market share by 13.2 percent.
In “Firms, Nonprofits, and Cooperatives: A Theory of Organizational Choice,” Patrick Herbst and Jens Prüfer construct a theoretical model to better understand what drives organizational choice when owners are faced with the options to run a profit-maximizing firm, to waive rights of residual income via choosing the nonprofit form, or to combine both the right to residual profits and maximization of heterogeneous consumption utility (via a consumer cooperative).
The paper will appear in a special issue, on “Organization and Governance in Social Economy Enterprises,” of Annals of Public and Cooperative Economics.
Jens Prüfer 