Nonprofit and for-Profit Partnerships: Rationale and Challenges of Cross-Sector Contracting

Abstract

Increasingly, nonprofit, for-profit, and public organizations have been cooperating in producing and distributing a wide range of goods and services. In many cases, the partnerships have arisen from the recognition that different activities are best suited to different governance structures. Yet, working through a cross-sectoral partnership can bring with it complicated managerial issues. This article explores partnering in two important sectors: higher education and welfare reform. In both areas, cooperation across the sectors is widespread and follows lines of comparative advantage. At the same time, there is ample evidence in our cases of classic transactions costs in implementing cross-sectoral partnerships. The article explores ways in which organizations deal with problems of opportunism and imperfect information in contracting across the sectors.