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The Nonprofit Firm: A Potential Solution to Inherent Market Failures


  • Preston, Anne E


This article analyzes the differences in products offered by nonpro fit and for-profit firms in a monopolistically competitive industry where goods are differentiated both by product attributes and by the degree to which benefits are public. Because nonprofit firms receive donations, they provide a Pareto improvement of the equilibrium product set: nonprofit firms will be less biased against goods with a high social good component than will their for-profit co unterparts. In addition, the optimal donations function that equates the nonprofit equilibrium product set to the set that maximizes societal welfare is derived. Copyright 1988 by Oxford University Press.

Suggested Citation

  • Preston, Anne E, 1988. "The Nonprofit Firm: A Potential Solution to Inherent Market Failures," Economic Inquiry, Western Economic Association International, vol. 26(3), pages 493-506, July.
  • Handle: RePEc:oup:ecinqu:v:26:y:1988:i:3:p:493-506

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    Cited by:

    1. Cho, In Soo, 2012. "Four essays on risk preferences, entrepreneurship, earnings, occupations, and gender," ISU General Staff Papers 201201010800003883, Iowa State University, Department of Economics.
    2. Cho, In Soo & Orazem, Peter, 2013. "Are Nonprofit Entrepreneurs Also "Jacks-Of-All-Trades"?," Staff General Research Papers Archive 35750, Iowa State University, Department of Economics.
    3. Edwin West, 1989. "Nonprofit organizations: Revised theory and new evidence," Public Choice, Springer, vol. 63(2), pages 165-174, November.
    4. Bruno Bises, 2000. "Exemption or Taxation for Profits of Non-Profits? An Answer from a Model Incorporating Managerial Discretion," Public Choice, Springer, vol. 104(1), pages 19-39, July.

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