Too Many Nonprofits? An Empirical Approach to Estimating Trends in Nonprofit Demand

Abstract

We examine the claim that nonprofits markets have become more crowded over time. A naïve examination of the data indicates that the number of nonprofits has increased rapidly over the past two decades. However, this approach does not account for increases in population, income, or other demand factors that would alter a population’s ability to support additional nonprofits. Our findings indicate that normalized nonprofit density in 2005 is lower than it was in 1990. Furthermore, we find that it takes far more people to induce nonprofit entry in 2005 compared to 1990. It is likely that technological shifts in production and management techniques introduced since 1995 now allow firms to serve larger numbers of people. Consequently, nonprofits are able to operate more efficiency, by spreading out the fixed costs of fundraising and management expenses over larger output.

Keywords: nonprofit, density, market structure

JEL Classification: L1, L3