Joint Ventures Between Non-Profit and For-Profit Organizations

Abstract:     
This paper examines the consequences of allowing a non-profit organization to form a joint venture with a for-profit organization. Three tax regimes are considered: prohibiting all such joint ventures; allowing all such joint ventures; and restricting joint ventures between non-profit and for-profit entities to those controlled by the non-profit organization. The paper derives the equilibrium profit sharing rule, output decision, and organizational form choice under each tax regime. Joint ventures can create both private and social benefits by reducing production costs. They can also create private benefits and social costs by reducing competition. Prohibitions or restrictions on joint ventures can either increase or decrease social welfare depending on whether the production cost effect or the competition effect is more important.

Accepted Paper Series