In order to minimize public expenditure local governments outsource management of urban areas to public companies or non-profit organizations (NPOs). There are plenty of studies on private management of public areas. For instance, the topic was discussed by Ward (2006), Ward (2007), Cook (2008), Hoyt & Goppal-Agge (2007), Peel, Lloyd & Lord (2009), Peyroux (2009) and many other authors. However, the majority of the literature is focused on such form of management of urban areas as business improvement districts. Murray (2010), however, attempts to explore another form of management – management by NPOs. In his work Private Management of Public Spaces: Nonprofit Organizations and Urban Parks the author advocates the efficiency of NPOs. Murray (2010) demonstrates the efficiency through the application of the so-called refined model.
Summary of the Article
Murray (2010) offers a full picture of private management of public areas. First, the author discusses two main trends in the private management of public areas – business improvement districts and the so called friends-groups and non-profit organizations.
Second, Murray (2010) explains the theories on NPOs. Thus, he reveals that according to the public goods theory, NPOs are designed to “satisfy unfulfilled demand for public goods” (Murray, 2010). Murray (2010) points out that the public goods theory does not answer two important questions: why some NPOs sell goods for profit, and why the demand for public goods cannot be satisfied by private businesses? Another theory, a contract failure theory is designed to answer the second question. Thus, according to this theory business is not interested in satisfying particular consumer demands but it is interested in selling as much as possible of its goods. Moreover, in some situations consumers are not able to evaluate the quality of goods because of lack of information. Therefore, there is some mismatch between the interests of business and interests of consumers. That is called a contract failure. A contract failure explains why NPOs are designed to satisfy the demand for public goods: they are not interested in profit. Murray (2010) finds limitations in both theories and attempts to develop other models. Thus, the author presents a synthesized model. The model is based on two main assumptions: (1) excess demand for public goods triggers the formation of non-governmental organizations and (2) contract failure prompts non-governmental organizations to transform into NPOs. However, the author finds that this model fails to explain the rise of NPOs that manage public areas: it is not clear why voters trust management of public areas to NPOs instead of government. Also, according to Murray (2010), the model does not account the management style differences between governmental and non-governmental entities. Furthermore, Murray (2010) explains the restricted and targeted character of donations to NPOs. The author specifies that NPOs obtain donations only for special projects. It means that donors do not trust NPOs to use donations at their own discretion but want to donate only for specific projects commissioned by NPOs. The lack of trust is an aspect which is not covered by the second assumption of the synthesized model. Murray (2010) then resorts to the so-called refined model. The core of the refined model is a responsibility: NPOs are truly responsible for the management of public areas due to purpose-directed donations. The refined model is based on the following assumptions: (1) there is an excess demand for improvements of public property; (2) excess demand caused the formation of non-governmental organizations, which transform into NPOs due to contract failures; (3) NPOs operation based on restricted donations, and thus, reduces monitoring costs.
Third, Murray (2010) tests the refined model against private management of Central Park and Bryant Park. As far as Central Park is concerned, Murray (2010) points out that the first attempts of private involvement were ineffective. However, the situation changed when Central Park became operated by the so-called Central Park Conservancy (CPC). The CPC was an organization ultimately responsible for the Central Park Operation. The CPC is also a financial intermediary between the park donors and the local government. Murray (2010) reveals that the CPC relies on restricted donations, e.g. donations provided for the specific projects such as construction. Murray concludes that the CPC approach towards the park management allows reducing monitoring costs. Therefore, in terms of costs, the refined model can be considered as effective. As far as Bryant Park is concerned, Murray (2010) explores management by the Bryant Park Restoration Corporation (BPRC). The author explains that the BPRC formed because it took financial and physical responsibility of the park. This step is consistent with a refined model. However, compared to Central Park, Bryant Park relied less on restricted donations. The similarity is that, in both cases, the strategies of operation of parks led to the reduction of monitoring costs.
Finally, Murray (2010) concludes that the refined model is effective in terms of saving monitoring costs. In general, the author finds that the model is efficient because it is based on ultimate responsibility of the NPOs for management. The author, thus, finds that it is necessary to encourage the application of such a model. According to him, it can be done through policy changes and creating a sustainable legal framework.
Murray (2010) points out that there are several implications of the refined model. First, the refined model represents a tool for exploring the way in which NPOs are emerged. In particular, the refined model explains that NPOs emerge as a response to the lack of centralized responsibility for the park management. Second, NPOs are responsible before their donors. Such a responsibility reduces monitoring costs: if NPO does not comply with the donor’s suggestions it risks loosing the donor. Therefore, NPOs are inclined to act according to donor’s suggestions. Thus, the need, to monitor every step and expenditure, is reduced. Overall, it leads to the reduction of monitoring costs.
Murray (2010) argues that the law and policy should allow NPOs to take more responsibility, as far as the private management of public areas is concerned. The author specifies that governments should transfer control over parks or other public goods to NPOs. The legal form of such transfer can be memoranda of understanding, management agreements or other legal documents. Murray (2010) further proposes that governments should make NPOs crowd out public funds with private donations. This will reduce monitoring costs. There is also a need for a legal reform: the law should allow donors, beneficiaries or third parties to challenge NPOs. In other words, the law should provide that NPOs owe fiduciary duties to their donors.
Personal Opinion of the Article
The article is written in a very clear way: even the reader, unfamiliar with the topic, can follow the development of the relevant points. Indeed, the author explains the topic step-by-step starting from the general concepts of private management of urban areas and then, moving to more specific aspects such as operation of parks by NGOs.
Another positive aspect of the work is an acknowledgment of the research limitations. Thus, Murray (2010) gives a room for development of new ideas, designed to fill the gap, and to some criticism. For example, acknowledges that the refined model is only a theoretical model and thus, only theoretically it can be efficient.
At the same time, even Murray’s theoretical assumptions have some drawbacks. For instance, he emphasizes that NPOs dependence on restricted donations defines the character of its operations; Central Park areas attached to wealthy neighborhoods were better renovated and cared than those attached to Harlem for example because donations majorly come from wealthy neighbors. It shows that extensive reliance on restricted donations may create disparity in managing urban areas.
In general, one should be careful accepting Murray’s argument regarding the efficiency of the refined model for several reasons. First, the author himself acknowledges that the model is only theoretical. Second, the fact that Central Park and Bryant Park fit in this model does not mean that other private management projects will. In a word, one should interpret Murray’s argument as follows: the refined model proves to be effective in two cases.
Murray’s article is concerned with the efficiency of NPOs in the management of public areas. The author develops the theoretical refined model that is centered on the responsibility of NPOs. He finds that centralized responsibility makes the management more efficient in terms of operation and costs. The author then tests the refined model against private management in Central Park and Bryant Park and finds it effective. In order to encourage the use of this model, there is a need for law and policy reforms.