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Not-for-profit entrepreneurs

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  • Glaeser, Edward Ludwig
  • Shleifer, Andrei

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 stronger, 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 of the decisions of the non-profits.

Suggested Citation

  • Glaeser, Edward Ludwig & Shleifer, Andrei, 2001. "Not-for-profit entrepreneurs," Scholarly Articles 33078971, Harvard University Department of Economics.
    • Handle: RePEc:hrv:faseco:33078971
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    More about this item

    JEL classification:

    • L30 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - General
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship

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