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Breaking the nonprofit starvation cycle? An experimental test

Author

Listed:
  • Yuan Tian

    (Shanghai Jiao Tong University)

  • Chiako Hung

    (University of Hawaii at Manoa)

  • Peter Frumkin

    (University of Pennsylvania)

Abstract

Donors' overhead aversion leads to a starvation cycle that hampers the ability of nonprofits to fulfill their missions. This study provides new evidence and suggests possible solutions to break the starvation cycle. Drawing on agency theory, this study adopts a between-subject experimental design to test two strategies for nonprofits with high overhead that seek to overcome donors' overhead aversion. The results suggest that donors are indeed troubled by high overhead ratios. However, charitable contributions to high-overhead nonprofits could be significantly increased if the nonprofits provide information regarding their organization’s performance and transparency. The study contributes to the literature in two ways: It analyzes the starvation cycle from the donors' perspective rather than nonprofits' perspective, and it tests proactive strategies in response to overhead aversion. This study concludes that breaking the nonprofit starvation cycle could begin with nonprofits taking a more open and direct stance when confronting the issue of overhead aversion.

Suggested Citation

  • Yuan Tian & Chiako Hung & Peter Frumkin, 2020. "Breaking the nonprofit starvation cycle? An experimental test," Journal of Behavioral Public Administration, Center for Experimental and Behavioral Public Administration, vol. 3(1).
    • Handle: RePEc:bpd:articl:v:3:y:2020:i:1:jbpa.31.93
    DOI: 10.30636/jbpa.31.93
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    References listed on IDEAS

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    1. Buchheit, Steve & Parsons, Linda M., 2006. "An experimental investigation of accounting information's influence on the individual giving process," Journal of Accounting and Public Policy, Elsevier, vol. 25(6), pages 666-686.
    2. Carlsson, Fredrik & He, Haoran & Martinsson, Peter, 2009. "Easy come, easy go - The role of windfall money in lab and field experiments," Working Papers in Economics 374, University of Gothenburg, Department of Economics.
    3. Ranjani Krishnan & Michelle H. Yetman, 2011. "Institutional Drivers of Reporting Decisions in Nonprofit Hospitals," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 49(4), pages 1001-1039, September.
    4. Richard Steinberg, 1986. "The Revealed Objective Functions of Nonprofit Firms," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 508-526, Winter.
    5. Portillo, Javier E. & Stinn, Joseph, 2018. "Overhead aversion: Do some types of overhead matter more than others?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 72(C), pages 40-50.
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    Cited by:

    1. Margaret Samahita & Leonhard K. Lades, 2021. "The Unintended Side Effects of Regulating Charities: Donors Penalise Administrative Burden Almost as Much as Overheads," Working Papers 202106, School of Economics, University College Dublin.
    2. Kwanho Suk & Triza Mudita, 2021. "Charitable Organizations’ Cost Disclosure Mitigates Overhead Aversion," Sustainability, MDPI, vol. 13(23), pages 1-12, December.

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    More about this item

    Keywords

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    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship
    • Z00 - Other Special Topics - - General - - - General
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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