Not-for-profit entrepreneurs

Entrepreneurs who start new firms may choose not-for-profit status as a mea ns of committing to soft incentives. Such incentives protect donors, volunt eers, consumers and employees from ex post expropriation of profits by the entrepreneur. We derive conditions under which completely self-interested e ntrepreneurs opt for not-for-profit status, despite the fact that this stat us limits their ability to enjoy the profits of their enterprises. We also show that even in the absence of tax advantages, unrestricted donations wou ld flow to non-profits rather than for-profit firms because donations have more significant influence on the decisions of the non-profits. (C) 2001 El sevier Science B.V. All rights reserved.