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Incentives, Externalities, and Specific Cases: Differences in Private Enterprises, Public Institutions, and Nonprofits

Author(s)

Xishan Li

Affiliation(s)

Minhang Crosspoint Academy, Shanghai Wenqi Private Middle School, Shanghai, China

Abstract

This article examines how corporations, public institutions, and nonprofit organizations differ in their incentive structures and ability to manage the externalities they encounter. From the case study on the 2010 BP oil spill, it is shown that corporations’ profit-driven focus encourages efficiency and innovation but leads them to focus more on short-term gains, consider only a small group of stakeholders, and ignore the broader environmental and social costs. In contrast, although public institutions and nonprofits may still face inefficiencies, they are guided by broader missions that enable them to implement longer-term investments and a more comprehensive responsiveness to marginalized groups. This article highlights three key dimensions: the rigidity of corporate incentive structures that are shaped by the society, the differences in creation and management of externalities, and a variety of approaches to risk and marginalized groups. These comparisons demonstrate that while corporations are better in delivering rapid returns, public institutions and nonprofits are relatively more suited to address extensive development goals and protect long-term social welfare.

Keywords

Private Enterprises; Public Institutions; Non-profits; Incentives; Investment Horizon; Externalities; Risk; Edge Cases

References

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