Competition, Contractibility, and the Market for Donors to Nonprofits

This article investigates theoretically and empirically the effects of competition for donors on the behavior of nonprofit organizations. Theoretically, we consider a situation in which nonprofit organizations use donations to produce some commodity, but the use of donations is only partially contra...

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Bibliographic Details
Published in:Journal of law, economics, & organization economics, & organization, 2008-05, Vol.24 (1), p.215-246
Main Authors: Castaneda, Marco A., Garen, John, Thornton, Jeremy
Format: Article
Language:English
Subjects:
Administrative expenses
Altruism
Charitable giving
Charities
Commodities
Competition
Consumption
Donation
Economic competition
Economics
Estimation
Expenditure
Expenditures
Fees
Fund raising
Fundraising
Game theory
Herfindahl Hirschman index
Market power
Modelling
Non-profit organizations
Nonprofit organizations
Organizational behavior
Organizational behaviour
Statistical significance
Studies
Tangible assets
Citations: Items that cite this one
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Summary:This article investigates theoretically and empirically the effects of competition for donors on the behavior of nonprofit organizations. Theoretically, we consider a situation in which nonprofit organizations use donations to produce some commodity, but the use of donations is only partially contractible. The main results of the model indicate that an increase in competition (i) decreases the fraction of donations allocated to perquisite consumption and (ii) increases the fraction of donations allocated to promotional expenditures. Moreover, the effects of competition are magnified by the ability to contract on the use of donations. These hypotheses are tested with data on the expenditures of nonprofit organizations in a number of subsectors where competition is primarily local. We use across-metropolitan statistical areas' variation to measure differences in competition and proxy contractibility by the importance of tangible assets, which are more easily observed by donors. The estimated effects of competition and contractibility are consistent with our model.
ISSN:8756-6222
1465-7341
DOI:10.1093/jleo/ewm036