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Scale Scale Economies in Nonprofit Provision, Technology Adoption and Entry

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  • Scharf, Kimberley

    (University of Warwick; CEPR)

Abstract

We study competition between nonprofit providers that supply a collective service through increasing-returns-to-scale technologies under conditions of free entry. When providers adopt a not-for-profit mission, the absence of a residual claimant can impede entry, protecting the position of an inefficient incumbent. Moreover, when providers supply goods that are at least partly public in nature, they may be unable to sustain the adoption of more efficient technologies that feature fixed costs, because buyers (private donors) face individual incentives to divert donations towards charities that adopt inferior, lower-fixed-cost technologies. These incentives may give rise to a technological race to the bottom, where nonprofit providers forgo opportunities to exploit scale economies. In these situations, government grants in support of core costs can have a nonneutral effect on entry, technology adoption, and industry performance.

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Bibliographic Info

Paper provided by Competitive Advantage in the Global Economy (CAGE) in its series CAGE Online Working Paper Series with number 44.

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Date of creation: 2011
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Handle: RePEc:cge:warwcg:44

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Keywords: Not-for-profit Organizations; Entry; Core Funding;

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  1. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  2. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-95, December.
  3. Edward L. Glaeser & Andrei Shleifer, 1998. "Not-For-Profit Entrepreneurs," NBER Working Papers 6810, National Bureau of Economic Research, Inc.
  4. Henry Hansmann, 1981. "Nonprofit Enterprise in the Performing Arts," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 341-361, Autumn.
  5. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-95, November.
  6. David Easley & Maureen O'Hara, 1983. "The Economic Role of the Nonprofit Firm," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 531-538, Autumn.
  7. Tomas J. Philipson & Richard A. Posner, 2006. "Antitrust in the Not-For-Profit Sector," NBER Working Papers 12132, National Bureau of Economic Research, Inc.
  8. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February.
  9. Lakdawalla, Darius & Philipson, Tomas, 2006. "The nonprofit sector and industry performance," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1681-1698, September.
  10. Baumol, William J & Willig, Robert D, 1981. "Fixed Costs, Sunk Costs, Entry Barriers, and Sustainability of Monopoly," The Quarterly Journal of Economics, MIT Press, vol. 96(3), pages 405-31, August.
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