Organizational Behavior in Private Nonprofits: A Study of Liberal Arts Colleges

An effort is made to examine empirically the behavior of private nonprofit liberal arts colleges. The conventional wisdom that nonprofits arise to insure quality in a context of asymmetric information, and that behavior is driven by the need to insure implicit contract compliance is studied. A three-equation model is estimated for the demand price and quality of liberal arts education. Among the conclusions are that consumers are able to acquire and respond to information, that market forces analogous to those in the private sector insure contract compliance and that price premia are not systematically related to quality differentials. The endowment proves to be a means of moderating price increases rather than an end in itself.