Organizational slack in subsidized nonprofit institutions

Informal objectives of managers next to the formal objective of the organization can be a source of organizational slack or X-inefficiency in nonprofit organizations. If the organization is subsidized the donor can restrain organizational slack by choosing an appropriate subsidy system. Four subsidy systems are discussed: output, input, revenue and lump sum subsidy. Output subsidy reduces slack most. The ranking of input subsidy compared with lump sum subsidy depends on the elasticity of demand for output. Revenue subsidy equals input subsidy. Changes in the subsidy regime for residential adult educations in the Netherlands turn out to have been inconsistent.