The Thin Mint Effect
| Peter Klein |
A new study finds that as nonprofit organizations increase their for-profit activities, the share of resources going to the core mission decreases. (Thanks to Fast Company for the link and the Thin Mint reference.)
This strikes me as a good illustration of multitask principal-agent problems. The output of for-profit activities is more easily measured than the output of nonprofit activities, giving agents (under performance-based pay) the incentive to increase effort toward those for-profit activities. Mises’s discussion of performance measurement and delegation in Bureaucracy comes to mind as well.