A Theory of Outsourced Fundraising: Why Dollars Turn into 'Pennies for Charity'

39 Pages Posted: 13 Jun 2015

See all articles by Zdravko Paskalev

Zdravko Paskalev

Independent

Huseyin Yildirim

Duke University - Department of Economics

Date Written: December 6, 2014

Abstract

Charities frequently rely on professional solicitors whose commissions exceed half of total donations. To understand this practice, we propose a principal-agent model in which the charity optimally offers a higher commission to a more “efficient” solicitor, raising the price of giving significantly. Outsourcing is, therefore, profitable for the charity only if giving is very price-inelastic. This, however, clashes with empirical evidence. We show that paid solicitations can benefit the charity if: (1) donors are unaware; (2) donors have intense “warm-glow” preferences; or (3) the charity worries mostly about watchdog ratings. We argue that informing the public of the mere existence of paid solicitations may be the most effective policy available.

Keywords: fund-raising, solicitation, outsourcing, charitable giving

JEL Classification: H4, L3, L5

Suggested Citation

Paskalev, Zdravko and Yildirim, Huseyin, A Theory of Outsourced Fundraising: Why Dollars Turn into 'Pennies for Charity' (December 6, 2014). Economic Research Initiatives at Duke (ERID) Working Paper No. 189. Available at SSRN: https://ssrn.com/abstract=2617494 or http://dx.doi.org/10.2139/ssrn.2617494

Zdravko Paskalev

Independent

No Address Available

Huseyin Yildirim (Contact Author)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States
919-660-1805 (Phone)
919-684-8974 (Fax)

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