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Commercial Activity as Insurance: the Investment Behavior of Non-profit Firms

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Author Info
John Bennett
Elisabetta Iossa
Gabriella Legrenzi

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Abstract

We provide a new rationale for commercial activities by non-profit organizations whose primary concern is to supply mission output. We show that investment in commercial activity may be used to insure mission output against the uncertainty of donations, though possibly at the cost of lower expected mission output. In this case, the amount of commercial investment is positively related to the variance of donations and to the degree of risk aversion. These predictions are corroborated by empirical tests on data from non-profit operating in the state of New York.

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Paper provided by Economics and Finance Section, School of Social Sciences, Brunel University in its series Economics and Finance Discussion Papers with number 03-26.

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Length: 34 pages
Date of creation: Nov 2003
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Handle: RePEc:bru:bruedp:03-26

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Postal: Brunel University, Uxbridge, Middlesex UB8 3PH, UK

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  1. Avner Ben-Ner, . "For-Profit, State, and Nonprofit: How to Cut the Pie Among the Three Sectors," Working Papers 0304, Industrial Relations Center, University of Minnesota (Twin Cities Campus). [Downloadable!]
  2. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November. [Downloadable!] (restricted)
  3. Gentry, William M., 2002. "Debt, investment and endowment accumulation: the case of not-for-profit hospitals," Journal of Health Economics, Elsevier, vol. 21(5), pages 845-872, September. [Downloadable!] (restricted)
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