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NGO Competition and the Markets for Development Donations

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  • Aldashev, Gani
  • Verdier, Thierry

Abstract

Is competition for donations between development NGOs good for welfare? We address this question in a monopolistic competition model à la Salop (1979). NGOs - defined by the non-distribution constraint - compete for donations from donors by exerting fundraising effort. If the market size is fixed, the free-entry equilibrium number of NGOs is usually larger than the optimal number. However, if the market size is endogenous and NGOs both compete and co-operate in attracting new donors, the free-entry equilibrium number of NGOs is generally smaller than the optimal number. If NGOs can divert a part of funds for private use, for a certain range of outside option of NGO entrepreneurs multiple equilibria (with high diversion and no diversion of funds) exist.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6350.

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Date of creation: Jun 2007
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Handle: RePEc:cpr:ceprdp:6350

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Keywords: monopolistic competition; NGOs; non-distribution constraint;

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References

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  1. PESTIEAU, Pierre & SATO, Motohiro, 2006. "Limiting the number of charities," CORE Discussion Papers 2006074, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Anna Fruttero & Varun Gauri, 2005. "The Strategic Choices of NGOs: Location Decisions in Rural Bangladesh," Journal of Development Studies, Taylor & Francis Journals, vol. 41(5), pages 759-787.
  3. William Easterly, 2002. "The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262550423, December.
  4. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
  5. Rowat, Colin & Seabright, Paul, 2004. "Intermediation by Aid Agencies," CEPR Discussion Papers 4781, C.E.P.R. Discussion Papers.
  6. Bilodeau, Marc & Slivinski, Al, 1997. "Rival charities," Journal of Public Economics, Elsevier, vol. 66(3), pages 449-467, December.
  7. Jeremy Thornton, 2008. "Competition, Contractibility, and the Market for Donors to Nonprofits," Journal of Law, Economics and Organization, Oxford University Press, vol. 24(1), pages 215-246, May.
  8. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
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Cited by:
  1. PESTIEAU, Pierre & SATO, Motohiro, 2006. "Limiting the number of charities," CORE Discussion Papers 2006074, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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