COMMERCIAL ACTIVITY AS INSURANCE: THE INVESTMENT BEHAVIOUR OF NON‐PROFIT ORGANIZATIONS

John Bennett (), Elisabetta Iossa and Gabriella Legrenzi ()

Annals of Public and Cooperative Economics, 2010, vol. 81, issue 3, 445-465

Abstract: ABSTRACT**: We provide a new explanation for commercial activities by non‐profit organizations whose primary concern is to supply mission output. Starting from the observation that donations to individual non‐profits are often highly volatile, we show how investment in commercial activity can constitute a form of insurance for mission activity. Although investment in commercial activity has an opportunity cost in terms of capacity to produce mission output, if donations turn out to be low the commercial revenue will enable cross‐subsidization of mission output. The equilibrium commercial investment is (weakly) positively related to the degree of risk aversion.

Date: 2010
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https://doi.org/10.1111/j.1467-8292.2010.00417.x

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