This article evaluates economic theories of the non-profit sector by their
ability to enlighten our understanding of the scope of inquiry, the
determinants of the size and scope of the non-profit sector, and the
behavioural responses of donors, volunteers, paid staff and non-profit
organisations to changes in their external environment. Adherence to a
non-distribution constraint has proven to be a useful way of delimiting
economic analysis of non-profit organisations, but more attention should
be paid to alternatives. Economists have been less successhd at developing
usable distinctions between voluntary action and exchange. The size and
scope of the sector appear to be determined by entrepreneurial supply
factors, donations (which in turn are influenced by tax policy, governmental
spending, fund-raising, and the quality and mixture of organisational
outputs, commercial or charitable), commercial activities, capital supply,
the supply of labour (paid and volunteered), the marketability of outputs,
and the distribution of consumer characteristics. Variations of James's
(1983) model have proven useful to predict the reaction of non-profits
to exogenous changes.