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Commercial Activity As Insurance: The Investment Behaviour Of Non‐Profit Organizations

Author

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  • John Bennett
  • Elisabetta Iossa
  • Gabriella Legrenzi

Abstract

ABSTRACT**: We provide a new explanation for commercial activities by non‐profit organizations whose primary concern is to supply mission output. Starting from the observation that donations to individual non‐profits are often highly volatile, we show how investment in commercial activity can constitute a form of insurance for mission activity. Although investment in commercial activity has an opportunity cost in terms of capacity to produce mission output, if donations turn out to be low the commercial revenue will enable cross‐subsidization of mission output. The equilibrium commercial investment is (weakly) positively related to the degree of risk aversion.

Suggested Citation

  • John Bennett & Elisabetta Iossa & Gabriella Legrenzi, 2010. "Commercial Activity As Insurance: The Investment Behaviour Of Non‐Profit Organizations," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 81(3), pages 445-465, September.
    • Handle: RePEc:bla:annpce:v:81:y:2010:i:3:p:445-465
    DOI: 10.1111/j.1467-8292.2010.00417.x
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    References listed on IDEAS

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    1. Anthony B. Atkinson & Peter G. Backus & John Micklewright & Cathy Pharoah & Sylke V. Schnepf, 2012. "Charitable giving for overseas development: UK trends over a quarter century," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 175(1), pages 167-190, January.
    2. Fisman, Raymond & Glenn Hubbard, R., 2005. "Precautionary savings and the governance of nonprofit organizations," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2231-2243, December.
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