Competition and Collaboration on Fundraising for Short-Term Disaster Response: The Impact on Earmarking and Performance

Abstract

Problem definition: Most humanitarian organizations (HOs) allow donors to earmark their donations, i.e., designate their contributions to a specific purpose. Allowing earmarking may increase donations, however, it creates operational inefficiencies that undermine the impact of those donations. Extant literature has mainly studied earmarking and its operational consequences in the absence of funding competition. We examine how competition for funding impacts earmarking decisions, fundraising costs, and HO performance in short-term disaster response. We also analyze two collaborative fundraising models: (i) full collaboration, where HOs contact donors as a unit and donors cannot donate to specific HOs on the fundraiser, and (ii) partial collaboration, where HOs contact donors as a unit and donors choose among the contacting HOs. Methodology/results: We use game theory to model the interactions between multiple HOs and a market of donors and build a multinomial logit model for the donor choice problem. We find that competition for funding contributes to the prevalence of earmarked donations, increases fundraising costs, and hurts HO performance and utility. We show the two collaborative fundraising models can mitigate these issues depending on the availability of funding resources. When funding is abundant, full collaboration improves HO utility and reduces earmarking and fundraising costs. When funding is scarce, partial collaboration reduces fundraising costs and improves performance and HO utility. When funding is intermediate, these two forms of collaboration do not necessarily benefit HOs. Managerial implications: We illustrate how funding availability drives earmarking and fundraising decisions as well as key performance metrics of different funding models during short-term disaster response. Using data from the 2010 Haiti earthquake, our numerical study indicates that partial collaboration benefits response to under-funded mega-disasters, while full collaboration suits well-funded disaster response. HOs competing for funds can use our insights to improve their response effectiveness.

Keywords: disaster response, donations, earmarking, competition, collaborative fundraising, operational performance

JEL Classification: H12, M10, M19