ABSTRACT
In addition, in industries characterized by many small enterprises, providing intangible services rather than countable objects, monito ring by the government would be very costly. The one-way term “subsidy” or “grant” rather than the reciprocal term “purchase” or “contract” is used precisely in such cases, where the quid pro quo is difficult to measure. Nonprofit status of the recipient may then reassure the government and substitute for monitoring; at least, the subsidies will not be distributed by NPO’s as pecuniary profits. Politicians may have a high preference for avoiding scandal, and subsidies to NPO’s may be considered “safer” than payments to PMO’s in industries where output cannot be readily observed. In contrast, concentrated industries with a small number of large firms which can more easily be monitored or regulated (e.g. defense, space) the government deals with PMO’s. However, even these contracts are often written on a cost-plus basis, in effect turning part of the PMO into a constrained-profit enterprise for purposes of dealing with the government.
