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

See all articles by Marco A. Castaneda

Marco A. Castaneda

Tulane University

John E. Garen

University of Kentucky - Gatton College of Business and Economics

Jeremy P. Thornton

Samford University - Brock School of Business

Abstract

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

Suggested Citation

Castaneda, Marco A. and Garen, John E. and Thornton, Jeremy P., Competition, Contractibility, and the Market for Donors to Non-Profits. Journal of Law, Economics, and Organization, Vol. 24, No. 1, 2008. Available at SSRN: https://ssrn.com/abstract=1114534

Marco A. Castaneda

Tulane University ( email )

Department of Economics
New Orleans, LA 70118
United States

John E. Garen (Contact Author)

University of Kentucky - Gatton College of Business and Economics ( email )

Department of Economics
Lexington, KY 40506
United States
859-257-3581 (Phone)
859-323-1920 (Fax)

Jeremy P. Thornton

Samford University - Brock School of Business ( email )

800 Lakeshore Drive
Birmingham, AL 35229
United States
2057262128 (Phone)

HOME PAGE: http://https://www.samford.edu/business/directory/Thornton-Jeremy

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