The Dark Side of Transparency: Mission Variety and Industry Equilibrium in Decentralized Public Good Provision

45 Pages Posted: 28 Jul 2020 Last revised: 16 Aug 2020

See all articles by Gani Aldashev

Gani Aldashev

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); University of Namur

Esteban Jaimovich

University of Surrey

Thierry Verdier

Paris School of Economics (PSE); Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: July 2020

Abstract

We study the implications of transparency policies on the decentralized public good

provision, by focusing on how the moral hazard problem inside non-profits interacts

with the competitive structure of the sector under alternative informational regimes.

More transparency on the use of funds has an ambiguous effect on the total public

good provision and the welfare of donors. On the one hand, more transparency encourages non-profit managers to devote more resources to curbing rent-seeking inside

organizations. On the other hand, it tilts the playing field against non-profits managers

who face higher cost of monitoring, inducing them to abandon their missions. From

the donors' perspective, there are two corresponding opposing effects: transparency is

good because of the reduction in rent-seeking in the non-profits active in the market,

but it can backfire because of a lower diversity of non-profits. Donors' welfare is lower

under transparency (than under no information on the use of funds) for intermediate

levels of asymmetry in the cost of monitoring.

Keywords: altruism, Charitable Giving, Non-profit organizations, transparency

JEL Classification: D23, D43, D64, L31

Suggested Citation

Aldashev, Gani and Jaimovich, Esteban and Verdier, Thierry, The Dark Side of Transparency: Mission Variety and Industry Equilibrium in Decentralized Public Good Provision (July 2020). CEPR Discussion Paper No. DP15030, Available at SSRN: https://ssrn.com/abstract=3650145

Gani Aldashev (Contact Author)

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium

University of Namur ( email )

8 rempart de la vierge
Namur, 5000
Belgium

Esteban Jaimovich

University of Surrey ( email )

Guildford
Guildford, Surrey GU2 5XH
United Kingdom

Thierry Verdier

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014
France

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
0
Abstract Views
40
PlumX Metrics