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Nonprofit Overhead Efficiency in the Israeli Welfare Sector: How Economies of Scale Could Lead to Administrative Savings

40 Pages Posted: 28 Oct 2011 Last revised: 15 Oct 2012

Elli Malki

Financial-Tip; Hebrew University - M.A. in Management of Nonprofit and Community Organizations; Rothberg International School of the HU - MA in Nonprofit Management and Leadership; Ben Gurion University - Mandel Social Leadership MBA Program

Maoz Brown

Hebrew University of Jerusalem

Date Written: October 27, 2011

Abstract

Third sector scholarship has long neglected the issue of excessive organizational duplication and its possible negative effects on efficiency. With the Israeli third sector ranking among the largest in the world and at a time in which the government is looking to further empower Israeli NGOs, it is important that third sector scholars consider how organizational crowding and network fragmentation may hinder the sector's ability to cater effectively to its beneficiaries. After providing theoretical background on organizational duplication, overhead, and the specific context of the Israeli third sector, this study focuses on a subsection of Israeli NGOs — welfare organizations — and examines how overhead rates (treated here, with qualification, as measures of efficiency) fluctuate according to four variables: size (measured by revenue), age, service type, and geographic peripherality. T-tests and multivariate regression analysis reveal that only size affects efficiency, with larger NGOs generally operating with lower overhead rates. Consequently, in addition to urging more in-depth research on duplication and factors influencing efficiency, the authors conclude that new policy relating to service organizations should facilitate NGO mergers, administrative consolidations, and other forms of restructuring that can help to streamline the sector, encourage collaboration, reduce the proliferation of small and redundant organizations, and achieve greater economies of scale.

Keywords: Nonprofits, Efficiency, Overhead, Economies of Scale, Welfare, Israel

JEL Classification: L31, L32, H41, I38

Suggested Citation

Malki, Elli and Brown, Maoz, Nonprofit Overhead Efficiency in the Israeli Welfare Sector: How Economies of Scale Could Lead to Administrative Savings (October 27, 2011). Available at SSRN: https://ssrn.com/abstract=1950374 or http://dx.doi.org/10.2139/ssrn.1950374

Elli Malki

Financial-Tip ( email )

P.O.B. 44034
Jerusalem, 91440
Israel
972-2-6568906 (Phone)

HOME PAGE: http://www.financial-tip.co.il

Hebrew University - M.A. in Management of Nonprofit and Community Organizations ( email )

Jerusalem
Israel
97226568906 (Phone)

HOME PAGE: http://www.financial-tip.co.il

Rothberg International School of the HU - MA in Nonprofit Management and Leadership ( email )

Boyar Building, Mt. Scoupus
Jerusalem, 91905
Israel
026568906 (Phone)

HOME PAGE: http://www.financial-tip.co.il

Ben Gurion University - Mandel Social Leadership MBA Program ( email )

Be'er Sheva
8410501
Israel
97226568906 (Phone)

HOME PAGE: http://www.financial-tip.co.il

Maoz Brown (Contact Author)

Hebrew University of Jerusalem ( email )

Mount Scopus
Jerusalem, IL 91905
Israel

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