Leadership and Economic Theories

Economic theories of Nonprofit Organizations (NPOs) have modified standard economic assumptions to explain altruism and nonprofit entrepreneurship but have neglected their dependence on leadership due to the traditional reluctance of economists to consider phenomena associated with preference change. The relevance of Hermalin’s (1998) model of leadership by example and Casson’s (1991) theory of leadership through moral manipulation are considered within an NPO context where leaders seek to influence stakeholder commitments to the organization’s quest. The propositions Elster (1998) advanced with regard to the relationship between the emotions and decision making are then applied in a theory that explains how NPO leaders can develop a culture of hope that maintains the quality control and product differentiation advantages claimed for these organizations. It is argued that policymakers should consider the dependence of NPOs on the quality of leadership when choosing the organisational mechanism for social service delivery.