Nonprofit Fund-Raising in Competitive Donor Markets

Abstract

Fund-raising expenditures represent an important strategic decision for nonprofit managers in the face of scarced on or resources. Privately, nonprofit managers weigh the trade-off between reaching new donors and increasing the implicit price of output to its constituents. Socially, competition among nonprofit firms for donations may produce an excessive level of fund-raising. This article empirically examines nonprofit fund-raising decisions, privately and socially, under varying market conditions. Analysis of financial data reveals that as markets become more competitive, nonprofits follow their private incentives by reducing their fund-raising expenditures. However, the author finds evidence that, collectively, nonprofits may spend an inefficiently high share of their revenues on fund-raising. As such, the author offers alternatives to the common practice of collective fund-raising through institutions such as the United Way. Implications of the study include increasing price transparency to improve market discipline or raising legal and financial barriers to entry.