Donations for Disaster Response: Competition on Earmarking and Fundraising Effort vs. Joint Fundraising

Abstract

Problem definition: Most humanitarian organizations (HOs) allow donors to earmark (designate the specific purpose of) their donations. All else equal, donors prefer HOs that allow earmarking. However, donors also consider HO performance. On the one hand, earmarking may increase donors' willingness to donate, which reduces the need for costly fundraising effort. On the other hand, earmarking causes operational inefficiencies, which reduce performance per unit donation (unit performance). While HO utility increases in unit performance and total donations, it decreases in fundraising costs. We study the optimal funding strategy of utility-maximizing HOs who compete for funding in a market of heterogeneous donors. Competition for funding occurs in two counteracting dimensions: earmarking and fundraising effort. Thus, the effect of competition on HOs' fundraising strategies is unclear. We also analyze two collaboration models. In the full collaboration model, HOs collaborate on earmarking and fundraising effort. In the partial collaboration model, HOs compete on earmarking while they collaborate on the fundraising effort. We compare these three fundraising models for various performance metrics. Methodology/results: We use game theory to model the interaction between HOs and build a multinomial logit model for the donor choice problem. We find that competition for funding contributes to the prevalence of earmarked donations for disaster response. This competition also hurts HOs' total performance and utility. We show that when funding is abundant, full collaboration improves HO utility and reduces earmarking and fundraising effort. When funding is scarce, partial collaboration outperforms the other models even though it results in the highest earmarking. Nevertheless, there are instances where competition outperforms both collaboration models. We numerically calibrate our results using data from the 2010 Haiti earthquake to illustrate our analytical findings. Managerial implications: We provide novel insights to understand and measure the joint impact of earmarking and fundraising effort on the HOs under competition and joint fundraising.

Keywords: disaster response, humanitarian operations, earmarking, competition for funding, joint fundraising, operational performance