Damage Removal and Risk-Aversive Behaviors in Investment: Non-Profit Organizations and Investment Activities under Uncertainty

Abstract

This paper investigates the theory behind the performance of non-profit organizations' investment activities toward damage removal. Here “ damage removal” is defined as actions undertaken for the security of drinking water, the reforestation of desertified land, and the removal of land mines. I also look at the problem of information sharing when organizations can choose to increase or decrease the investment level under uncertainty, and their investment actions generate spillovers of technology, skills and knowledge for damage removal.
I assume that the production function and the probability distribution are continuous and differentiable under general conditions. If the degree of risk aversion of organizations is high enough, information sharing is not beneficial, and hence may not be formed between organizations for damage removal efforts.
When we deal with the construction of a scheme to share information, our results suggest this sharing system does not improve the present state of damage control if participants only consist of non-profit organizations with strong risk-aversion. If the organizations studied wish to improve the present quantity of damage removal, each organization should be required to adopt a degree of risk aversion within a fixed range.
On the contrary, the expected utility, namely the prospective level of damage removal, can be improved by information sharing when this constructed scheme targets a group of organizations operating below a critical level of risk aversion.

JEL Classification: D81, L31, L38