Working Paper: CEPR ID: DP7978
Authors: Kimberley Ann Scharf
Abstract: Fixed costs that are not sunk do not translate into entry barriers against for-profit competitors. We show that in the case of non-commercial, not- for-profit providers, the presence of fixed costs may protect the position of an inefficient incumbent. In these situations, successfully contesting the position of incumbents may require new providers to adopt a for- profit organizational form ? notwithstanding the moral hazard problem that this might entail when quality of provision is difficult to monitor ? or, alternatively, to secure core funding from government or from a large private donor.
Keywords: charities; core funding; not-for-profit organizations
JEL Codes: L1; L3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| fixed costs (D24) | inefficient selection (C52) |
| fixed costs (D24) | lack of competition (D41) |
| government funding (H59) | entry of lower-cost providers (D49) |
| fixed costs (D24) | government funding (H59) |