The Impact of the Non-distribution Constraint and Its Enforcement on Entrepreneurial Choice, Price, and Quality

Petra Brhlikova and Andreas Ortmann

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: We study the conditions under which it is rational for a representative entrepreneur to start a nonprofit firm. Taking as point of departure a model of entrepreneurial choice proposed by Glaeser and Shleifer (2001), we analyze consequences of weak enforcement of the non-distribution constraint on entrepreneurial choice and price and quality of the product. We find that the nonprofit organizational form becomes unequivocally more attractive to entrepreneurs if enforcement of the non-distribution constraint is weak. We also nd that the quality delivered by nonprofit firms is lower under weak enforcement than that of the nonprofit firm under strict enforcement, but higher than the quality delivered by a for-prot rm. We discuss the implications and limitations of our results.

Keywords: Entrepreneurial choice; Nonprofit; For-profit; Non-distribution constraint; Enforcement (search for similar items in EconPapers)
JEL-codes: D2 K42 L2 L31 (search for similar items in EconPapers)
Date: 2006-07
New Economics Papers: this item is included in nep-bec, nep-ent and nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:cer:papers:wp299

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