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The Impact of the Non-Distribution Constraint and its Enforcement on Entrepreneurial Choice, Price, and Quality


Petra Brhlikova


CERGE-EI, Center For Econ Research & Grad Education, and Econ Institute, Prague

Andreas Ortmann


University of New South Wales - Australian School of Business

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

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Date posted: May 19, 2008 ; Last revised: October 3, 2009

Suggested Citation

Brhlikova, Petra and Ortmann, Andreas, The Impact of the Non-Distribution Constraint and its Enforcement on Entrepreneurial Choice, Price, and Quality (July 1, 2008). CERGE-EI Working Paper No. 299. Available at SSRN: http://ssrn.com/abstract=1133435 or http://dx.doi.org/10.2139/ssrn.1133435

Contact Information

Petra Brhlikova (Contact Author)
CERGE-EI, Center For Econ Research & Grad Education, and Econ Institute, Prague ( email )
P.O. Box 882
7 Politickych veznu
Prague 1, 111 21
Czech Republic
420 224 005 227 (Phone)
HOME PAGE: http://www.cerge-ei.cz
Andreas Ortmann
University of New South Wales - Australian School of Business ( email )
High Street
Sydney, NSW 2052
Australia

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