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

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  • John Bennett

    ()
    (Brunel University)

  • Elisabetta Iossa

    ()
    (CMPO University of Bristol)

  • Gabriella Legrenzi

    ()
    (Keele University, Centre for Economic Research and School of Economic and Management Studies)

Abstract

We provide a new rationale for commercial activities by non-profit organizations (NPOs) 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 NPOs operating in the state of New York.

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Bibliographic Info

Paper provided by Centre for Economic Research, Keele University in its series Keele Economics Research Papers with number KERP 2006/14.

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Length: 39 pages
Date of creation: Jul 2006
Date of revision:
Handle: RePEc:kee:kerpuk:2006/14

Note: Bennett and Iossa acknowledge gratefully financial support from the ESRC under grant R/000/22/3811.
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Postal: Department of Economics, University of Keele, Keele, Staffordshire, ST5 5BG - United Kingdom
Phone: +44 (0)1782 584581
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Web page: http://www.keele.ac.uk/depts/ec/cer/
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Postal: Centre for Economic Research, Research Institute for Public Policy and Management, Keele University, Staffordshire ST5 5BG - United Kingdom
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Web: http://www.keele.ac.uk/depts/ec/cer/pubs_kerps.htm

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Keywords: Insurance; investment; non-profit organisations.;

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