Nonprofit child care centers are frequently observed to produce child care which is, on average, of higher quality than care provided in commercial child care centers. In part, this nonprofit advantage is due to different input choices made by nonprofit centers-lower child-staff ratios, better-educated staff and directors, higher rates of professional development for staff. Nonprofit centers may have an additional productivity advantage, due to unmeasured staff motivation and abilities or to better management of the production of good-quality child care. However, where nonprofit and for-profit child care firms compete in the same local markets, we speculate that this extra advantage should only appear where demand is sufficiently “thick” to permit a quality differentiation strategy to be financially viable for nonprofits. We estimate the effect of nonprofit status on quality, controlling for differences in financial resources available to the center, differences in the clientele served, and differences in staff and center inputs. In this conventional examination, nonprofit status has a moderately positive impact on quality. However, when we account for the unobserved heterogeneity and separate markets into “thick” and “thin,” a particularly strong nonprofit advantage is found in thick markets, but no productivity advantage for nonprofits is found in thin markets. This finding suggests a clear role for nonprofit organizations in improving the cost-quality trade-off faced by parents, but also identifies the market conditions that affect the ability of nonprofit managers to employ this advantage. © 2009 by the Association for Public Policy Analysis and Management.

This article examines and organises the economic literature dealing with non-profit institutions using the concept of 'stakeholders'. In general, the literature identifies conflicts between various groups of stakeholders and then proceeds in two very different directions. The first is supportive of the non-profit sector, suggesting that non-profit organisations resolve those conflicts more effectively than other types of institutions. This provides a positive theory of the non-profit sector, explaining that nonprofit institutions evolve when they are more effective in providing a particular good or service than other possible institutional arrangements. The second direction is more critical of the non-profit sector, suggesting that those conflicts will persist in non-profit institutions and will require some kind of resolution, including perhaps government intervention. Of course, a stakeholder approach to non-profit theory focuses on conflict and ignores some other views of the sector.

Most American authors approach nonprofit institutions as an alternative to both for‐profit and public provision. This view suggests that the issues surrounding governance focus on the tension between the needs of individuals who finance or benefit from the activities of nonprofits and the goals of those who manage them. A different paradigm is more appropriate in much of the rest of the world. This article focuses on Canada, where the decision to use nonprofit organizations is made largely by governments. Examples from the Canadian experience with health care, higher education, day care, and television illustrate this difference and some of the implications for nonprofit management that follow from it.