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The Impact of the Non-Distribution Constraint and its Enforcement on Entrepreneurial Choice, Price, and QualityPetra BrhlikovaCERGE-EI, Center For Econ Research & Grad Education, and Econ Institute, Prague Andreas OrtmannAustralian School of Business, UNSW July 1, 2008 CERGE-EI Working Paper No. 299 Abstract: We study the conditions under which it is rational for a representative entrepreneur to start a nonprofit firm. Taking as point of departure a model of entrepreneurial choice proposed by Glaeser and Shleifer (2001), we analyze consequences of weak enforcement of the non-distribution constraint on entrepreneurial choice and price and quality of the product. We find that the nonprofit organizational form becomes unequivocally more attractive to entrepreneurs if enforcement of the non-distribution constraint is weak. We also find that the quality delivered by nonprofit firms is lower under weak enforcement than that of the nonprofit firm under strict enforcement, but higher than the quality delivered by a for-profit firm. We discuss the implications and limitations of our results.
Number of Pages in PDF File: 25 Keywords: Entrepreneurial choice, Nonprofit, For-profit, Non-ditribution constraint, Enforcement on-distribution, JEL Classification: D2, L2, L31, K42 working papers seriesDate posted: May 19, 2008 ; Last revised: October 3, 2009Suggested CitationContact Information
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