The profit-maximizing non-profit

Abstract

This article explores behaviour that is the opposite of that usually considered in analyses of the private provision of a public good. The charity (or NGO), rather than aiming to maximize provision of the public good financed by contributions, maximizes profits. The model describes an equilibrium with many people contributing, and where the provision of the public good may be less than the amount donated by any one person, the other contributions being appropriated by the NGO. An NGO constrained to spend a fixed fraction of all contributions on the public good can have an incentive to produce inefficiently. Last, its behaviour will generate incomplete crowding out of governmental grants.