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Note, For-Profit And Nonprofit Charter Schools: An Agency Costs Approach, John D. Morley Jan 2006

Note, For-Profit And Nonprofit Charter Schools: An Agency Costs Approach, John D. Morley

Faculty Scholarship Series

This Note applies agency costs theory to explain charter schools' use of forprofit
and nonprofit forms, and to suggest ways to make charter school regulation more sensitive to the differences between these forms. Borrowing from Henry Hansmann's "contract failure" theory of nonprofits and recent data on the makeup of the charter school market, I argue that nonprofit forms dominate because they minimize the unusually high agency costs that characterize interactions between charter operators and the parents, regulators, and donors who influence them. For-profit schools survive only when the economies of scale they capture through superior capital-raising offset their higher ...