Association for Public Policy Analysis & Management

This paper examines the usefulness of the traditional industrial organization (IO) framework in economics for examining the performance of non-profit industries. The market for many, probably most, non-profits is local: half-way houses, women’s shelters, literacy programs, day care centers. Each of these types of programs can be thought of as a local industry, although there are also firms or networks that span multiple markets. In IO studies, economists look at how the structure of an industry and the conduct of firms within it affect its performance, which is often defined in terms of profitability, innovativeness, and social contributions.

 For non-profit industries, the dimensions of performance are different, as discussed below. Ideally, we would like to use such a framework to compare how performance compares in different industries in different places and to explain why the differences exist. Some of the relevant features of industry structure and firm behavior may include the following:

Is the industry comprised of many small organizations or one or more larger one?

Are there significant economies of scale?

What is the turnover among its organizations?

In what ways do organizations compete? For funding, staff, clients, influence?

In what ways do they collaborate?

What are the effects of competition or collaboration on industry performance?

What is the effect on innovation of having organizations that operate in multiple local markets?

Is the industry growing or shrinking?

To what extent do organizations like a local United Way affect the industry?

To what extent do federal and state funding and regulation affect the structure, conduct and performance of the local industries?

What criteria should be used to assess the performance of non-profit industries? Criteria can include the following:

The scope of the industry’s efforts relative to the problems being addressed.

Equity in the distribution of services

The effectiveness per unit of opportunity cost.

Innovativeness

Reflectiveness—support for useful data collection and industry improvement

Responsiveness to local people

 Consideration of the merits of this framework depends on several factors. One is the feasibility of collecting comparable and reliable data. Another is whether local industries in social services are really so constrained by state and federal funding and guidelines that the truly local features make little difference.

 As a step in this analysis, the paper will develop estimates of performance in two non-profit industries and will also examine the structure and conduct issues for these industries.