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Competition, Contractibility, and the Market for Donors to Nonprofits

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  • Jeremy Thornton

Abstract

This article investigates theoretically and empirically the effects of competition for donors on the behavior of nonprofit organizations. Theoretically, we consider a situation in which nonprofit organizations use donations to produce some commodity, but the use of donations is only partially contractible. The main results of the model indicate that an increase in competition (i) decreases the fraction of donations allocated to perquisite consumption and (ii) increases the fraction of donations allocated to promotional expenditures. Moreover, the effects of competition are magnified by the ability to contract on the use of donations. These hypotheses are tested with data on the expenditures of nonprofit organizations in a number of subsectors where competition is primarily local. We use across--metropolitan statistical areas' variation to measure differences in competition and proxy contractibility by the importance of tangible assets, which are more easily observed by donors. The estimated effects of competition and contractibility are consistent with our model. The Author 2007. Published by Oxford University Press on behalf of Yale University. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/jleo/ewm036
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Bibliographic Info

Article provided by Oxford University Press in its journal The Journal of Law, Economics, & Organization.

Volume (Year): 24 (2008)
Issue (Month): 1 (May)
Pages: 215-246

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Handle: RePEc:oup:jleorg:v:24:y:2008:i:1:p:215-246

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Cited by:
  1. Peter Nunnenkamp & Hannes Öhler, 2011. "Funding, Competition and the Efficiency of NGOs: An Empirical Analysis of Non-charitable Expenditure of US NGOs Engaged in Foreign Aid," Working Papers CEB 11-026, ULB -- Universite Libre de Bruxelles.
  2. Peter Nunnenkamp & Hannes Öhler & Tillmann Schwörer, 2011. "US based NGOs in International Development Cooperation: Survival of the Fittest?," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 83, Courant Research Centre PEG.
  3. Burger, Ronelle & Dasgupta, Indraneel & Owens, Trudy, 2011. "A Model of NGO Regulation with an Application to Uganda," IZA Discussion Papers 6221, Institute for the Study of Labor (IZA).
  4. Gordon Liu & Wai-Wai Ko, 2011. "Social Alliance and Employee Voluntary Activities: A Resource-Based Perspective," Journal of Business Ethics, Springer, vol. 104(2), pages 251-268, December.
  5. Aldashev, Gani & Verdier, Thierry, 2007. "NGO Competition and the Markets for Development Donations," CEPR Discussion Papers 6350, C.E.P.R. Discussion Papers.
  6. Thornton, Jeremy, 2010. "Explaining unrestricted giving by charitable foundations: A transaction cost approach," International Journal of Industrial Organization, Elsevier, vol. 28(1), pages 44-53, January.

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