Bureaucracy And Charities: The Economics Of Private Voluntary Aid

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Abdiweli M. Ali

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Abstract

This paper tries to shed light on the economics of non-profit firms. It presents a limited managerial discretionary model of non-profits to indicate that the functions of the non-profits are not devoid of self-interest. The model shows that non-profits are not that different than for-profit firm except that they are constrained by the zero-profit condition associated with non-profits. Nevertheless, the managers of non-profit are self-interested utility-maximizers like their counterparts in for-profit firms. The limited role that they can play is clear from the analysis above. If non-profit organizations perform a useful role, they must provide outputs that cannot be provided profitably by private enterprises. It must be the case that the lure of profit doesn’t lead to a socially efficient allocation of resources when there are socially valuable forms of outputs that are not rewarded financially----either because they are costly to buyers to evaluate or because they go to persons with little ability to pay.

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