Annals of Public and Cooperative Economics 81:3 2010 pp. 445–465 COMMERCIAL ACTIVITY AS INSURANCE: THE INVESTMENT BEHAVIOUR OF NON-PROFIT ORGANIZATIONS by John BENNETT CEDI, Brunel University, London Elisabetta IOSSA Brunel University, University of Rome Tor Vergata, CEDI, CMPO and EIEF and Gabriella LEGRENZI ∗ Keele University, CESifo, and Rimini Centre for Economic Analysis ABSTRACT ** : We provide a new explanation for commercial activities by non-profit organizations whose primary concern is to supply mission output. Starting from the observation that donations to individual non-profits are often highly volatile, we show how investment in commercial activity can constitute a form of insurance for mission activity. Although investment in commercial activity has an opportunity cost in terms of capacity to produce mission output, if donations turn out to be low the commercial revenue will enable cross-subsidization of mission output. The equilibrium commercial investment is (weakly) positively related to the degree of risk aversion. ∗ We thank a referee, and also Phillip Davis, Christos Ioannidis, Miltos Makris and Tim Worrall for helpful comments. Bennett and Iossa acknowledge gratefully financial support from the ESRC under grant R/000/22/3811. ∗∗ R´ esum´ e en fin d’article; Zusammenfassung am Ende des Artikels; resumen al final del art´ ıculo. C  2010 The Authors Journal compilation C  CIRIEC 2010. Published by Blackwell Publishing Ltd. 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA