Why For-profit Companies Compete with Non-profit Organizations to Access Development Aid Contracts?

Abstract: In this paper, we ask what, if anything, is distinctive about the bidding and contracting behaviors of for-profit firms and non-profit organizations in markets for social goods. We explore the empirically rich setting of open, scoring auctions used by U.K.’s Department for International Development to procure aid services. We identify patterns of differentiation --for-profits tend to act as transactions-centric, agenda-takers, non-profits as solution-centric, agenda-setters; contracts with for-profits typically involve much higher cost overruns, contracts with non-profits are cheaper but jeopardize public interests. We also identify areas of convergence, where non-profits and for-profits compete, and deviate from prototypical non-profit and for-profit behaviors. Our findings shed novel light on the intricate interdependencies between public and private actors/interests, ex ante legitimacy of for-profit firms in markets for social goods, and hybrid organizing.