NOT-FOR-PROFIT ENTREPRENEURS: Donors


When non-profit status attracts more altruistic producers, prices in non-profit firms need not always be higher than prices in for-profit firms, despite the fact that non-profits have higher unverifiable quality. If altruists care about offering low prices, which many at least claim to, then the altruistic producers in the non-profit sectors may set prices below those in the for-profit sector. Of course, there would then be queues in the non-profit sector. Thus Harvard and other top universities ration the slots in their entering classes, as do some of the non-profit long term care facilities. An alternative view is that low prices make administration easier, since there is less need for advertising and management (since there is always a queue of customers) and that non-profits set lower prices to avoid effort.

In summary, this section has made two points. In general, non-profit firms produce higher levels of quality and therefore attract entrepreneurs who care about quality more. Non-profit status may also convey information about the underlying commitment of the entrepreneur to quality provision. As such, non-profit status is a signal of a taste for quality.
Want to make sure your loan application process is easy and pleasant? Getting a speedy payday loan from More info is always that way, plus you get your money in no time, which is always nice. We mean business when it comes to offering you money, so you can count on fast and reliable loans every time.
Donors

In many situations, nonprofit firms provide charitable services for which they charge below cost, if anything. As a consequence, not-for-profit firms often rely on outside donations for part of their revenues12. Many individuals, with the help of the tax exemption for charitable donations, are willing to donate funds. Many donations can be understood as attempts to fund a particular project or interest of the donor or to gain social standing through displays of wealth and altruism. Such donors are best thought of as customers of the non-profit, and thus fit nicely into the model described above.

The non-profit is supplying the donor with prestige or a very particular service (e.g., a full time researcher at a distinguished university dedicated to Gender Studies). The firm has the opportunity to either comply with the wishes of the donor (glorify her name or fulfill the implicit agreement) or to renege and simply use the money for other purposes. While any institution has its reputation at stake in such a situation, a non-profit has less of an incentive to completely renege because of the limits placed on its use of new funds (Rose-Ackerman 1996). Non-profits have an advantage with donors, not only because of their tax status, but also because the inability to personally profit makes the people who run them more trustworthy.

A large number of donations are general funds given to an institution, not funds given for a particular purpose. In fact, donations sometimes lose their tax advantages when an explicit contract describing the terms of the arrangement is written.