Competition, Contractibility, and the Market for Donors to Nonprofits

Posted: 23 Jun 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

Date Written: May 2008

Abstract

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.

Suggested Citation

Castaneda, Marco A. and Garen, John E. and Thornton, Jeremy P., Competition, Contractibility, and the Market for Donors to Nonprofits (May 2008). The Journal of Law, Economics, & Organization, Vol. 24, Issue 1, pp. 215-246, 2008. Available at SSRN: https://ssrn.com/abstract=1150040 or http://dx.doi.org/10.1093/jleo/ewm036

Marco A. Castaneda

Tulane University ( email )

Department of Economics
New Orleans, LA 70118
United States

John E. Garen

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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