Societys demands for goods and services are satisfied by three main institutional forms: The for-profit corporate sector, government agencies, and nonprofit organisations. This dissertation focuses on the persistence of the nonprofit sector.The seminal theories of the persistence of nonprofits are functional and are based on the ability of the nonprofit to correct for government or contract-failure. I supplement these with microfoundational explanations, analyzing the behaviour of the principal actors in nonprofits: Trustees, managers, consumers, and donors.Using an economic model of utility maximisation, I examine the role of trustees in providing legitimacy to nonprofits and in engendering trust to resolve contract failure. I find that the wealth and reputation endowments of a trustee are important in enhancing this legitimizing role. Surprisingly, increasing the trustees commitment to the cause does not necessarily increase his/her ability to legitimise the nonprofit. Most of these results fit well with the observed attributes of trustees reported in the literature.Trust in an institution may also require trust in the individuals that make it work. Given that nonprofits often specialise in services that are hard to evaluate, this implies a problem of trust between the trustee and the manager. The resolution of this problem is achieved by promoting self-selection of employees who are more likely to be trustworthy. I suggest that, under certain circumstances, this may be done by offering managers of nonprofits lower (or differently composed) wages than those obtainable elsewhere. This provides one explanation of the observed wage differential between nonprofits and other institutional forms.I use a simple model of consumer choice to explain the coexistence of nonprofits with for-profit and government organisations, and to illustrate how nonprofits resolve the government-failure problem. The explanation focuses on a consumer, willing to trade off (trusted) quality for efficiency and price.To understand donor behaviour, I examine the specific incentives and constraints faced by potential donors to nonprofits. This is undertaken in the context of environmental nonprofits. A model is provided to explain and characterize donor behaviour based on the mandate of the recipient nonprofit.