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Are Donors Afraid of Charities' Core Costs? Scale Economies in Non-profit Provision and Charity Selection

Author

Listed:
  • Carlo Perroni
  • Ganna Pogrebna
  • Sarah Sandford
  • Kimberley Ann Scharf

Abstract

We study contestability in non-profit markets when non-commercial providers supply a homogeneous collective good through increasing-returns-to-scale technologies. Unlike in the case of for-profit competition, in the non-profit case the absence of price-based sales contracts means that fixed costs are directly relevant to donors, and that they can translate into an entry barrier, protecting the position of an inefficient incumbent; or that, conversely, they can make it possible for inefficient newcomers to contest the position of a more efficient incumbent. Evidence from laboratory experiments show that fixed cost driven trade-offs between payoff dominance and perceived risk can lead to inefficient selection.

Suggested Citation

  • Carlo Perroni & Ganna Pogrebna & Sarah Sandford & Kimberley Ann Scharf, 2014. "Are Donors Afraid of Charities' Core Costs? Scale Economies in Non-profit Provision and Charity Selection," CESifo Working Paper Series 5024, CESifo.
    • Handle: RePEc:ces:ceswps:_5024
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    References listed on IDEAS

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    More about this item

    Keywords

    not-for-profit organizations; entry; core funding;
    All these keywords.

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L30 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - General
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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