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Target-Group and Quality Decisions of Inequity-Averse Entrepreneurs

Author

Listed:
  • Steffen Burchhardt

    (Department of Economics and Management, Otto-von-Guericke University Magdeburg)

  • Christoph Starke

    (Department of Economics and Management, Otto-von-Guericke University Magdeburg)

Abstract

Limited donations force nonprofit entrepreneurs to ration needy individuals by deciding on who is served at what quality level. We propose a positive model of this allocation for applicants with differing incomes under the assumption of perfect user-fee discrimination. By following recent experimental economic research on social preferences, we assume that entrepreneurs behave inequity averse, i.e. they care about the relative consumption possibilities of others. We find that less inequity-averse entrepreneurs prefer to serve wealthier individuals at high reference quality. In contrast, more inequity-averse entrepreneurs care for the poorest individuals but offer minimum quality. Furthermore, as input costs increase, entrepreneurs with low inequity aversion change the target group, while entrepreneurs with high aversion do not.

Suggested Citation

  • Steffen Burchhardt & Christoph Starke, 2010. "Target-Group and Quality Decisions of Inequity-Averse Entrepreneurs," FEMM Working Papers 100011, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    • Handle: RePEc:mag:wpaper:100011
    as

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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing

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