The Other Side of Ownership in Nonprofit Organizations: an Economic Rationale for Democracy

Going beyond the deeply examined non-distribution constraint, which refers to the right to residual income, the paper investigates the other side of ownership, i.e. the right to residual control, to discover a general economic rationale for what we call “democracy”: a collective decision-making method based on the principles of equality and inclusiveness. The main result of the analysis is to point to the concept of perfect democracy as an efficient solution for the provision of public goods where other allocative mechanisms, such as the marketplace, fail.