Prompted to Be Good: The Impact of Certification on the Quality of Charities
AbstractIn this study we model how certification affects managers’ choice of the quality of the nonprofit organizations they run. We analyze a market with one representative charity, run by a manager with some preference for the provision of a charitable good, one donor, and a certification agency. We assume that the nature of the charitable good does not allow for partial provision, thus, the charity can be of two types only: a good charity that spends all its resources on the charitable good, and a bad one that diverts all its resources for the private consumption of its manager (for-profit in disguise). We show that for a wide parameter range, the presence of an honest certifier in the market increases the incentives for managers to choose good charities, leading to an improvement in the market as the share of good charities increases.
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Bibliographic InfoPaper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp320.
Date of creation: Mar 2007
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Quality assurance; certification; moral hazard; experience goods. versus second–best strategic policy.;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-09-30 (All new papers)
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- Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
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