Not-for-Profit Entrepreneurs

30 Pages Posted: 26 Dec 1998 Last revised: 11 Oct 2010

See all articles by Edward L. Glaeser

Edward L. Glaeser

Harvard University - Department of Economics; Brookings Institution; National Bureau of Economic Research (NBER)

Andrei Shleifer

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: November 1998

Abstract

Entrepreneurs who start new firms may choose not-for-profit status as a means of committing to soft incentives. Such incentives protect donors, volunteers, consumers and employees from ex post expropriation of profits by the entrepreneur. We derive conditions under which completely self-interested entrepreneurs opt for not-for-profit status, despite the fact that this status limits their ability to enjoy the profits of their enterprises. When entrepreneurs have a taste for producing high quality products, the incentives are even softer, and, moreover, non-profit status can serve as a signal of that taste. We also show that even in the absence of tax advantages, unrestricted donations would flow to non-profits rather than for-profit firms because donations have more significant influence on the decisions of the non-profits.

Suggested Citation

Glaeser, Edward L. and Shleifer, Andrei, Not-for-Profit Entrepreneurs (November 1998). NBER Working Paper No. w6810. Available at SSRN: https://ssrn.com/abstract=141308

Edward L. Glaeser (Contact Author)

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Andrei Shleifer

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