The Nonprofit Catallaxy: An Austrian Economics Perspective on the Nonprofit Sector

This paper examines the nonprofit sector from the perspective of the Austrian school of economic thought. In contrast to the
traditional market failure approach, the Austrian school locates the role of the nonprofit sector in the facilitation of the
spontaneous order and the utilization of local dispersed knowledge about the societal needs through a Hayekian “discovery
procedure.” Another contribution of the Austrian school is in calling attention to the “calculation challenge” faced by the
nonprofit sector, i.e., the reduced role of monetary signals as the informational basis for decision making. The calculation
challenge brings up the important issue of societal feedback mechanisms operating in the nonprofit sector. It is shown that,
in the nonprofit sector context, this challenge takes the form of the accountability problem.