Resource and Revenue Management in Nonprofit Operations
AbstractNonprofit firms sometimes engage in for-profit activities for the purpose of generating revenue to subsidize their mission activities. The organization is then confronted with a consumption vs. investment tradeoff, where investment corresponds to providing capacity for revenue customers, and consumption corresponds to serving mission customers. Exemplary of this approach are the Aravind Eye Hospitals in India, where profitable paying hospitals are used to subsidize care at free hospitals. We model this problem as a multi-period stochastic dynamic program. In each period, the organization must decide how much of the current assets should be invested in revenue-customer service capacity, and at what price the service should be sold. We provide sufficient conditions under which the optimal capacity and pricing decisions are of threshold type. Similar results are derived when the selling price is fixed but the banking of assets from one period to the next is allowed. We compare the performance of the optimal threshold policy with heuristics that may be more appealing to managers of nonprofit organizations, and assess the value of banking and of dynamic pricing through numerical experiments.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by ESMT European School of Management and Technology in its series ESMT Research Working Papers with number ESMT-08-006.
Length: 52 pages
Date of creation: 03 Jul 2008
Date of revision:
Publication status: Forthcoming in Operations Research , xx-xx .
capacity allocation; revenue management; dynamic pricing; nonprofit;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-07-30 (All new papers)
- NEP-MIC-2008-07-30 (Microeconomics)
- NEP-MKT-2008-07-30 (Marketing)
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ESMT Faculty Publications).
If references are entirely missing, you can add them using this form.