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Fundraising and Optimal Policy Rules

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  • MURAT C. MUNGAN
  • BARIŞ K. YÖRÜK

Abstract

This paper develops a simple spatial model of fundraising, in which charities select a target population to solicit donations. First, we show that in a competitive charity market without any intervention, the number of charities in the market and/or the overall net funds raised by charities may be sub-optimal. Next, we analyze whether a social planner can prevent such shortcomings and show that a regulatory mechanism can be designed to achieve socially desirable outcomes. In contrast to the previous literature, our model does not necessarily produce monopoly as the optimal market structure. We show that if fixed costs associated with establishing charities are sufficiently low, then the optimal market structure is not a monopoly. Given the importance of the trade-off between the volume and variety of charitable services, we argue that this result may be of particular interest to policy makers.
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Suggested Citation

  • Murat C. Mungan & Bariş K. Yörük, 2012. "Fundraising and Optimal Policy Rules," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 14(4), pages 625-652, August.
    • Handle: RePEc:bla:jpbect:v:14:y:2012:i:4:p:625-652
    DOI: j.1467-9779.2012.01555.x
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    File URL: http://hdl.handle.net/10.1111/j.1467-9779.2012.01555.x
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    References listed on IDEAS

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    1. Amihai Glazer & Kai A. Konrad, 2008. "A Signaling Explanation for Charity," Springer Books, in: Roger D. Congleton & Kai A. Konrad & Arye L. Hillman (ed.), 40 Years of Research on Rent Seeking 2, pages 713-722, Springer.
    2. Nicholas Economides & Susan Rose-Ackerman, 1993. "Differentiated Public Goods: Privatization and Optimality," Palgrave Macmillan Books, in: Hiroshi Ohta & Jacques-François Thisse (ed.), Does Economic Space Matter?, chapter 6, pages 111-132, Palgrave Macmillan.
    3. Harbaugh, William T., 1998. "What do donations buy?: A model of philanthropy based on prestige and warm glow," Journal of Public Economics, Elsevier, vol. 67(2), pages 269-284, February.
    4. Hiroshi Ohta & Jacques-François Thisse (ed.), 1993. "Does Economic Space Matter?," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-22906-2.
    5. Bilodeau, Marc & Slivinski, Al, 1997. "Rival charities," Journal of Public Economics, Elsevier, vol. 66(3), pages 449-467, December.
    6. Vincent C.H. Chua & Chung Ming Wong, 2003. "The Role of United Charities in Fundraising: The Case of Singapore," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 74(3), pages 433-464, September.
    7. Fisher, Franklin M, 1977. "On Donor Sovereignty and United Charities," American Economic Review, American Economic Association, vol. 67(4), pages 632-638, September.
    8. Yörük, BarIs K., 2009. "How responsive are charitable donors to requests to give?," Journal of Public Economics, Elsevier, vol. 93(9-10), pages 1111-1117, October.
    9. Okten, Cagla & Weisbrod, Burton A., 2000. "Determinants of donations in private nonprofit markets," Journal of Public Economics, Elsevier, vol. 75(2), pages 255-272, February.
    10. Vesterlund, Lise, 2003. "The informational value of sequential fundraising," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 627-657, March.
    11. James Andreoni & A. Abigail Payne, 2003. "Do Government Grants to Private Charities Crowd Out Giving or Fund-raising?," American Economic Review, American Economic Association, vol. 93(3), pages 792-812, June.
    12. Duncan, Brian, 2002. "Pumpkin Pies and Public Goods: The Raffle Fundraising Strategy," Public Choice, Springer, vol. 111(1-2), pages 49-71, March.
    13. Khanna, Jyoti & Posnett, John & Sandler, Todd, 1995. "Charity donations in the UK: New evidence based on panel data," Journal of Public Economics, Elsevier, vol. 56(2), pages 257-272, February.
    14. Romano, Richard & Yildirim, Huseyin, 2001. "Why charities announce donations: a positive perspective," Journal of Public Economics, Elsevier, vol. 81(3), pages 423-447, September.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Charities: competition vs. the social planner
      by Economic Logician in Economic Logic on 2010-01-05 00:09:00

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    Cited by:

    1. Eckel, Catherine & Guney, Begum & Uler, Neslihan, 2020. "Independent vs. Coordinated Fundraising: Understanding the Role of Information," European Economic Review, Elsevier, vol. 127(C).
    2. Barış K. Yörük, 2016. "Charity Ratings," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 25(1), pages 195-219, March.
    3. Gayle, Philip, 2024. "Do Nonprofits Engage in Excessive Fundraising?," MPRA Paper 120684, University Library of Munich, Germany.
    4. Kevin C. Corinth, 2016. "A price theory of altruistic identity," AEI Economics Working Papers 901391, American Enterprise Institute.
    5. Crettez, Bertrand & Hayek, Naila & Zaccour, Georges, 2020. "Do charities spend more on their social programs when they cooperate than when they compete?," European Journal of Operational Research, Elsevier, vol. 283(3), pages 1055-1063.

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    JEL classification:

    • L38 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Policy

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