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

Author

Listed:
  • 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.

Suggested Citation

  • John Bennett & Elisabetta Iossa & Gabriella Legrenzi, 2006. "Commercial Activity as Insurance: the Investment Behavior of Non-Profit Firms," Keele Economics Research Papers KERP 2006/14, Centre for Economic Research, Keele University.
  • 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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    Keywords

    Insurance; investment; non-profit organisations.;

    JEL classification:

    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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