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

40 Pages Posted: 4 Nov 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 22, 2014

Abstract

We study contestability in non-profit markets when non-commercial providers supply a homogeneous collective good through increasing-returns-to-scale technologies. Unlike in the case of for-profit competition, in the non-profit case the absence of price-based sales contracts 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: not-for-profit organizations, entry, core funding

JEL Classification: L100, L300, D400

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 and Charity Selection (October 22, 2014). CESifo Working Paper Series No. 5024. Available at SSRN: https://ssrn.com/abstract=2518413

Carlo Perroni

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 (Contact Author)

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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