Target-Group and Quality Decisions of Inequity-Averse Entrepreneurs

Steffen Burchhardt () and Christoph Starke ()
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Steffen Burchhardt: Department of Economics and Management, Otto-von-Guericke University Magdeburg
Christoph Starke: Department of Economics and Management, Otto-von-Guericke University Magdeburg

No 100011, FEMM Working Papers from Otto-von-Guericke University Magdeburg, Faculty of Economics and Management

Abstract: Limited donations force nonprofit entrepreneurs to ration needy individuals by deciding on who is served at what quality level. We propose a positive model of this allocation for applicants with differing incomes under the assumption of perfect user-fee discrimination. By following recent experimental economic research on social preferences, we assume that entrepreneurs behave inequity averse, i.e. they care about the relative consumption possibilities of others. We find that less inequity-averse entrepreneurs prefer to serve wealthier individuals at high reference quality. In contrast, more inequity-averse entrepreneurs care for the poorest individuals but offer minimum quality. Furthermore, as input costs increase, entrepreneurs with low inequity aversion change the target group, while entrepreneurs with high aversion do not.

Keywords: inequity aversion; nonprofit; quality; rationing; social entrepreneur; user fees (search for similar items in EconPapers)
JEL-codes: D45 H41 L31 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2010-04
New Economics Papers: this item is included in nep-ent
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