Commercial Activity as Insurance: The Investment Behaviour of Non-Profit Organizations

21 Pages Posted: 17 Aug 2010

See all articles by John Bennett

John Bennett

Brunel University London - Economics and Finance; Institute for the Study of Labor (IZA); University of Wales, Swansea - School of Business and Economics; Centre for Economic Policy Research (CEPR)

Elisabetta Iossa

University of Rome Tor Vergata; IEFE Bocconi University; Centre for Economic Policy Research (CEPR)

Gabriella Deborah Legrenzi

Keele University - Department of Economics

Abstract

We provide a new explanation for commercial activities by non-profit organizations whose primary concern is to supply mission output. Starting from the observation that donations to individual non-profits are often highly volatile, we show how investment in commercial activity can constitute a form of insurance for mission activity. Although investment in commercial activity has an opportunity cost in terms of capacity to produce mission output, if donations turn out to be low the commercial revenue will enable cross-subsidization of mission output. The equilibrium commercial investment is (weakly) positively related to the degree of risk aversion.

Suggested Citation

Bennett, John and Iossa, Elisabetta and Legrenzi, Gabriella Deborah, Commercial Activity as Insurance: The Investment Behaviour of Non-Profit Organizations. Annals of Public and Cooperative Economics, Vol. 81, Issue 3, pp. 445-465, September 2010, Available at SSRN: https://ssrn.com/abstract=1660010 or http://dx.doi.org/10.1111/j.1467-8292.2010.00417.x

John Bennett (Contact Author)

Brunel University London - Economics and Finance ( email )

Uxbridge UB8 3PH
United Kingdom
+44 1895 816 201 (Phone)
+44 1895 203 384 (Fax)

Institute for the Study of Labor (IZA)

Schaumburg-Lippe-Str. 7 / 9
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Germany

University of Wales, Swansea - School of Business and Economics ( email )

Singleton Park
Swansea, Wales SA2 8PP SA2 8PP
United Kingdom
+44 1792 295 168 (Phone)
+44 1792 295 872 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Elisabetta Iossa

University of Rome Tor Vergata ( email )

Via Columbia n.2
Rome, 00133
Italy

IEFE Bocconi University ( email )

Via Roentgen 1
Milan, Milan 20136
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Gabriella Deborah Legrenzi

Keele University - Department of Economics ( email )

ST5 5BG Staffordshire, Staffs, ST5 5BG
United Kingdom

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