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Navigating the Notches: Charity Responses to Ratings

Author

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  • Jennifer Mayo

    (Harry Truman School of Government and Public Affairs and Department of Economics, University of Missouri)

Abstract

This paper studies both donor and nonprofit responses to the star rating system designed by Charity Navigator. I find that charities respond to the rating system by changing their behavior to try to get themselves above the star thresholds, leading to "bunching" at the thresholds. This response is equal to the effect of charities halving spending on administration, although some of it is due to misreporting. Furthermore, donors reward charities for this behavior, such that a one-star increase in rating from 3- to the highest 4-star rating raises contributions by 6%. The results carry implications for optimal rating design.

Suggested Citation

  • Jennifer Mayo, 2023. "Navigating the Notches: Charity Responses to Ratings," Working Papers 2306, Department of Economics, University of Missouri.
    • Handle: RePEc:umc:wpaper:2306
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    More about this item

    Keywords

    Charity ratings; nonprofit behavior; donor behavior;
    All these keywords.

    JEL classification:

    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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