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When warm glow burns: Motivational (mis)allocation in the non-profit sector

Author

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  • Verdier, Thierry
  • Aldashev, Gani
  • Jaimovich, Esteban

Abstract

We build an occupational-choice general-equilibrium model of an economy with the non-profit sector financed through private warm-glow donations. Lack of monitoring on the use of funds implies that an increase of funds of the non-profit sector (because of a higher income in the for-profit sector, a stronger preference for giving, or an inflow of foreign aid) worsens the motivational composition and performance of the non-profit sector. If motivated donors give more than unmotivated ones, there exist two stable (motivational) equilibria. Linking donations to the motivational composition of the non-profit sector or a tax-financed public funding of non-profits can eliminate the bad equilibrium.

Suggested Citation

  • Verdier, Thierry & Aldashev, Gani & Jaimovich, Esteban, 2014. "When warm glow burns: Motivational (mis)allocation in the non-profit sector," CEPR Discussion Papers 9963, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:9963
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    2. Lea Cassar, 2014. "Optimal contracting with endogenous project mission," ECON - Working Papers 150, Department of Economics - University of Zurich, revised Oct 2014.
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    4. Valasek, Justin, 2018. "Dynamic reform of public institutions: A model of motivated agents and collective reputation," Journal of Public Economics, Elsevier, vol. 168(C), pages 94-108.
    5. Hagen, Rune Jansen, 2014. "Rents and the Political Economy of Development Aid," Working Papers in Economics 07/14, University of Bergen, Department of Economics.

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    More about this item

    Keywords

    altruism; Charitable giving; Foreign aid.; Non-profit organizations; Occupational choice;
    All these keywords.

    JEL classification:

    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship

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