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A theory of outsourced fundraising: Why dollars turn into “Pennies for Charity”

Listed author(s):
  • Paskalev, Zdravko
  • Yildirim, Huseyin
Registered author(s):

    Charities frequently rely on professional solicitors whose commissions exceed half of the solicited donations. To understand this practice, we propose a principal-agent model in which the charity optimally offers a higher commission to a more efficient solicitor, raising the price of giving significantly. Outsourcing is, therefore, profitable for the charity only if giving is very price-inelastic, which is not supported by empirical evidence. We show that outsourced fundraising can be optimal if: donors are unaware of this practice; the professional solicitor better activates donors’ warm-glow feelings toward the cause; or there is a significant fixed cost of fundraising. We argue that informing the public of the mere existence of paid solicitations may be the most effective policy available.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0167268117300598
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    Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

    Volume (Year): 137 (2017)
    Issue (Month): C ()
    Pages: 1-18

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    Handle: RePEc:eee:jeborg:v:137:y:2017:i:c:p:1-18
    DOI: 10.1016/j.jebo.2017.02.017
    Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

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