Too Many Nonprofits? An Empirical Approach to Estimating Trends in Nonprofit Demand Density

We examine the claim that nonprofit markets have become more crowded over time. A naïve examination of the data indicates that the number of nonprofits has increased rapidly over the past two decades. However, this approach does not account for increases in population, income, or other demand factors that would alter a population’s ability to support additional nonprofits. We attempt to quantify a standard unit of demand for nonprofits over time, by exploiting the panel nature of our data. Our findings indicate that nonprofit density, normalized for changes in demand, in 2005 is lower than it was in 1990. We are also able to examine the impact of incremental increases in population to absorb a nonprofit. Overall, we find that it takes far more people to support nonprofit entry in 2005 compared to 1990. It is likely that technological shifts in production and management techniques introduced since 1990 allow firms to serve larger numbers of people. Consistent with our findings, this type of change would result in fewer nonprofits per market, serving larger numbers of people. Our results therefore provide evidence that growth in the nonprofit sector has not necessarily implied increased density or greater competition in the sector.