Are Donors Afraid of Charities' Core Costs? Scale Economies in Non-Profit Provision

42 Pages Posted: 6 Oct 2014

See all articles by Carlo Perroni

Carlo Perroni

University of Warwick - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Ganna Pogrebna

Columbia University

Sarah Sandford

London School of Economics & Political Science (LSE)

Kimberley A. Scharf

University of Warwick - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); London School of Economics & Political Science (LSE) - Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)

Date Written: October 2014

Abstract

We study contestability in non-profit markets where non-commercial providers supply a homogeneous collective good or service through increasing-returns-to-scale technologies. Unlike in the case of for-profit markets, in the non-profit case the absence of price-based sales contracts between providers and donors means that fixed costs are directly relevant to donors, and that they can translate into an entry barrier, protecting the position of an inefficient incumbent; or that, conversely, they can make it possible for inefficient newcomers to contest the position of a more efficient incumbent. Evidence from laboratory experiments show that fixed cost driven trade-offs between payoff dominance and perceived risk can lead to inefficient selection.

Keywords: core funding, entry, not-for-profit organizations

JEL Classification: L1, L3

Suggested Citation

Perroni, Carlo and Pogrebna, Ganna and Sandford, Sarah and Scharf, Kimberley, Are Donors Afraid of Charities' Core Costs? Scale Economies in Non-Profit Provision (October 2014). CEPR Discussion Paper No. DP10179. Available at SSRN: https://ssrn.com/abstract=2506015

Carlo Perroni (Contact Author)

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom
44 24 7652 8416 (Phone)
44 24 7652 3032 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Ganna Pogrebna

Columbia University ( email )

419 Schermerhorn Hall
New York, NY 10027
United States

HOME PAGE: http://www.gannapogrebna.com

Sarah Sandford

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Kimberley Scharf

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom
44 24 76523 742 (Phone)
44 24 76523 032 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

London School of Economics & Political Science (LSE) - Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

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