Revitalizing the contribution non-profit organizations can make to the provision of human services

Purpose – At present no satisfactory economic theory of non-profit organizational leadership exists. The purpose of this paper is to develop an economic theory of non-profit leadership and apply this theory to the problem of non-profit failure or 'voluntary sector failure.' Design/methodology/approach – The paper draws on the economic literature on the non-profit sector to critically examine this approach to theorizing about non-profit organizations (NPOs). It then considers the contribution that Lester Salamon has made to the understanding of NPOs. It is argued that the very sources of non-profit “distinctiveness” identified by Salamon are also simultaneously associated with 'voluntary sector failure.' An economic theory of non-profit leadership is developed and it is held that appropriate leadership can reduce voluntary failure. Findings – The major comparative advantages of NPOs make these agencies particularly prone to various forms of 'voluntary failure' that present challenges not only to NPOs, but also public policy makers. This paper presents a theory of non-profit leadership that seeks to demonstrate that appropriate forms of non-profit leadership can overcome, or at least ameliorate, voluntary failure. Research limitations/implications – Future research could determine empirically whether leadership plays a decisive role in the performance of the non-profit sector. This would assist in assessing the empirical validity of the presented in this paper. Originality/value – The literature on non-profit failure is incomplete without an adequate theory of non-profit leadership. This paper develops a theory of non-profit organizational leadership and argues that appropriate leadership can reduce the extent and severity of non-profit failure.