Competition, Contractibility, and the Market for Donors to Non-Profits
Journal of Law, Economics, and Organization, Vol. 24, No. 1, 2008
Posted: 30 Mar 2008
This paper investigates theoretically and empirically the effects of competition for donors on the behavior of non-profit organizations. Theoretically, we consider a situation in which non-profit organizations use donations to produce some commodity, but the use of donations is only partially contractible. The main results of the model indicate 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 effectiveness of competition increases with the ability to contract on the use of donations. The hypotheses are tested with data on the expenditures of non-profit organizations in a number of sub-sectors where competition is primarily local. In addition, we use across-MSA 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.
Keywords: Nonprofit Organizations, Contractibility, Competition
JEL Classification: L31
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