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A theory of outsourced fundraising: Why dollars turn into “Pennies for Charity”

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  • Paskalev, Zdravko
  • Yildirim, Huseyin

Abstract

Charities frequently rely on professional solicitors whose commissions exceed half of the solicited 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, which is not supported by empirical evidence. We show that outsourced fundraising can be optimal if: donors are unaware of this practice; the professional solicitor better activates donors’ warm-glow feelings toward the cause; or there is a significant fixed cost of fundraising. We argue that informing the public of the mere existence of paid solicitations may be the most effective policy available.

Suggested Citation

  • Paskalev, Zdravko & Yildirim, Huseyin, 2017. "A theory of outsourced fundraising: Why dollars turn into “Pennies for Charity”," Journal of Economic Behavior & Organization, Elsevier, vol. 137(C), pages 1-18.
    • Handle: RePEc:eee:jeborg:v:137:y:2017:i:c:p:1-18
    DOI: 10.1016/j.jebo.2017.02.017
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    1. Kopel, Michael & Marini, Marco A., 2022. "Mandatory disclosure of managerial contracts in NGOs," Journal of Economic Behavior & Organization, Elsevier, vol. 199(C), pages 65-85.
    2. Alvaro J. Name-Correa, 2017. "Learning by fund-raising," Review of Economic Design, Springer;Society for Economic Design, vol. 21(4), pages 291-316, December.
    3. Michael Kopel & Marco A. Marini, 2020. "Mandatory Disclosure of Managerial Contracts in Nonprofit Organizations," Working Papers 2020.26, Fondazione Eni Enrico Mattei.

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    More about this item

    Keywords

    Fundraising; Solicitation; Outsourcing; Charitable giving;
    All these keywords.

    JEL classification:

    • H4 - Public Economics - - Publicly Provided Goods
    • L3 - Industrial Organization - - Nonprofit Organizations and Public Enterprise
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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