THE NONPROFIT FIRM: A POTENTIAL SOLUTION TO INHERENT MARKET FAILURES

This article analyzes the differences in products offered by nonprofit and for-profit firms in a monopolistically competitive industry where goods are differentiated both by product attributes and by the degree to which benefits are public. Because nonprofit firms receive donations, they provide a Pareto improvement of the equilibrium product set: nonprofit firms will be less biased against goods with a high social good component than will their for-profit counterparts, hi addition, the optimal donations function which equates the nonprofit equilibrium product set to the set which maximizes societal welfare is derived.