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 Public Policy Discussion Papers with number
03-26.
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