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Not-For-Profit Entrepreneurs

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  • Edward L. Glaeser
  • Andrei Shleifer

Abstract

Entrepreneurs who start new firms may choose not-for-profit status as a means of committing to soft incentives. Such incentives protect donors, volunteers, consumers and employees from ex post expropriation of profits by the entrepreneur. We derive conditions under which completely self-interested entrepreneurs opt for not-for-profit status, despite the fact that this status limits their ability to enjoy the profits of their enterprises. When entrepreneurs have a taste for producing high quality products, the incentives are even softer, and, moreover, non-profit status can serve as a signal of that taste. We also show that even in the absence of tax advantages, unrestricted donations would flow to non-profits rather than for-profit firms because donations have more significant influence on the decisions of the non-profits.

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Bibliographic Info

Paper provided by Harvard - Institute of Economic Research in its series Harvard Institute of Economic Research Working Papers with number 1852.

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Date of creation: 1998
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Handle: RePEc:fth:harver:1852

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References

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  1. Oliver Hart & John Moore, 1998. "Cooperatives vs. Outside Ownership," Harvard Institute of Economic Research Working Papers 1816, Harvard - Institute of Economic Research.
  2. Michael Kremer, 1997. "Why are Worker Cooperatives So Rare?," NBER Working Papers 6118, National Bureau of Economic Research, Inc.
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  16. Pauly, Mark V & Redisch, Michael, 1973. "The Not-For-Profit Hospital as a Physicians' Cooperative," American Economic Review, American Economic Association, vol. 63(1), pages 87-99, March.
  17. Payne, A. Abigail, 1998. "Does the government crowd-out private donations? New evidence from a sample of non-profit firms," Journal of Public Economics, Elsevier, vol. 69(3), pages 323-345, September.
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