Nonprofits, Crowd-Out, and Credit Constraints
AbstractWe introduce a model of an infinitely-lived nonprofit organization facing donor crowd-out by government grants and credit constraints. The nonprofit chooses the optimal allocation of resources over time between providing service and fund-raising activities. We show that the response of fund-raising expenditures to grants not only hinges on the effect of grants on the productivity of fund-raising as in static models, but depends critically on the timing of grants and credit market access. When nonprofits face credit constraints, increases in future grants lead to reductions in fund-raising because nonprofits reallocate resources over time. In previous nonprofit theories of crowd-out, a negative relationship between grants and fund-raising expenditures follows from an assumption that the marginal productivity of fund-raising expenditures decreases with government grants. In contrast we provide robust empirical evidence that government grants increase the marginal productivity of fund-raising, which is inconsistent with the key assumption of those theories. Moreover, we provide strong evidence of intertemporal resource allocation with limited credit access as predicted in our theoretical model. We discuss why the distinction matters for policies supporting nonprofit public good provision.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by LeBow College of Business, Drexel University in its series School of Economics Working Paper Series with number 2013-5.
Length: 54 pages
Date of creation: 23 May 2013
Date of revision:
nonprofit; crowd-out; fund-raising; government grants; credit constraints;
Find related papers by JEL classification:
- H00 - Public Economics - - General - - - General
- L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
- L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-01-10 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Duncan, Brian, 1999. "Modeling charitable contributions of time and money," Journal of Public Economics, Elsevier, vol. 72(2), pages 213-242, May.
- Khanna, Jyoti & Posnett, John & Sandler, Todd, 1995. "Charity donations in the UK: New evidence based on panel data," Journal of Public Economics, Elsevier, vol. 56(2), pages 257-272, February.
- Charles Grant, 2007. "Estimating credit constraints among US households," Oxford Economic Papers, Oxford University Press, vol. 59(4), pages 583-605, October.
- Arthur C. Brooks, 2000. "Public subsidies and charitable giving: Crowding out, crowding in, or both?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 19(3), pages 451-464.
- Brian Knight, 2002. "Endogenous Federal Grants and Crowd-out of State Government Spending: Theory and Evidence from the Federal Highway Aid Program," American Economic Review, American Economic Association, vol. 92(1), pages 71-92, March.
- Riber, D.C. & Wilhelm, M.O., 1996.
"Altruistic and Joy-of-Giving Motivations in Charitable Behavior,"
1-96-4, Pennsylvania State - Department of Economics.
- David C. Ribar & Mark O. Wilhelm, 2002. "Altruistic and Joy-of-Giving Motivations in Charitable Behavior," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 425-457, April.
- Allen N. Berger & Timothy H. Hannan, 1987.
"The price-concentration relationship in banking,"
Research Papers in Banking and Financial Economics
100, Board of Governors of the Federal Reserve System (U.S.).
- Hungerman, Daniel M., 2009. "Crowd-out and diversity," Journal of Public Economics, Elsevier, vol. 93(5-6), pages 729-740, June.
- Roberts, Russell D, 1984. "A Positive Model of Private Charity and Public Transfers," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 136-48, February.
- Harrison Teresa D. & Laincz Christopher A, 2008. "Entry and Exit in the Nonprofit Sector," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(1), pages 1-42, July.
- Gruber, Jonathan & Hungerman, Daniel M., 2007.
"Faith-based charity and crowd-out during the great depression,"
Journal of Public Economics,
Elsevier, vol. 91(5-6), pages 1043-1069, June.
- Jonathan Gruber & Daniel M. Hungerman, 2005. "Faith-Based Charity and Crowd Out during the Great Depression," NBER Working Papers 11332, National Bureau of Economic Research, Inc.
- Hannan, Timothy H & Berger, Allen N, 1991. "The Rigidity of Prices: Evidence from the Banking Industry," American Economic Review, American Economic Association, vol. 81(4), pages 938-45, September.
- James Andreoni & A. Abigail Payne, 2003. "Do Government Grants to Private Charities Crowd Out Giving or Fund-raising?," American Economic Review, American Economic Association, vol. 93(3), pages 792-812, June.
- James W. Friedman, 1983. "Advertising and Oligopolistic Equilibrium," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 464-473, Autumn.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Richard C. Barnett).
If references are entirely missing, you can add them using this form.