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Overhead aversion: Do some types of overhead matter more than others?

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  • Portillo, Javier E.
  • Stinn, Joseph

Abstract

Overhead aversion is an issue of great importance to nonprofit organizations. On one hand, overhead (non-program expenses) is vital to the operational abilities of a nonprofit; on the other hand, there is evidence that donors dislike paying for overhead costs. In this paper, we use an experiment to study overhead from the perspective of donors. First, we replicate the prior finding establishing the existence of overhead aversion. Then we obtain new results by extending this line of research, examining whether donors have an aversion to specific types of overhead (specifically, salaries and fundraising). Our results suggest that donor behavior may be dependent on their outside option. If an overhead-free donation is readily available, then the average donor in our experiment (70–80% of subjects) prefers that charity to receive the donation. However, if donations are not overhead-free, most (approximately two-thirds of subjects) prefer the donation go toward fundraising efforts instead of salary-related expenditures.

Suggested Citation

  • Portillo, Javier E. & Stinn, Joseph, 2018. "Overhead aversion: Do some types of overhead matter more than others?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 72(C), pages 40-50.
    • Handle: RePEc:eee:soceco:v:72:y:2018:i:c:p:40-50
    DOI: 10.1016/j.socec.2017.11.003
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    References listed on IDEAS

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    1. Karlan, Dean & Wood, Daniel H., 2017. "The effect of effectiveness: Donor response to aid effectiveness in a direct mail fundraising experiment," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 66(C), pages 1-8.
    2. Meer, Jonathan, 2014. "Effects of the price of charitable giving: Evidence from an online crowdfunding platform," Journal of Economic Behavior & Organization, Elsevier, vol. 103(C), pages 113-124.
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    5. Brown, Alexander L. & Meer, Jonathan & Williams, J. Forrest, 2017. "Social distance and quality ratings in charity choice," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 66(C), pages 9-15.
    6. Duncan, Brian, 2004. "A theory of impact philanthropy," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 2159-2180, August.
    7. Eckel, Catherine C. & Grossman, Philip J., 2003. "Rebate versus matching: does how we subsidize charitable contributions matter?," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 681-701, March.
    8. Eckel, Catherine C. & Herberich, David H. & Meer, Jonathan, 2017. "A field experiment on directed giving at a public university," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 66(C), pages 66-71.
    9. Bazerman, Max H. & Moore, Don A. & Tenbrunsel, Ann E. & Wade-Benzoni, Kimberly A. & Blount, Sally, 1999. "Explaining how preferences change across joint versus separate evaluation," Journal of Economic Behavior & Organization, Elsevier, vol. 39(1), pages 41-58, May.
    10. Susan Rose-Ackerman, 1982. "Charitable Giving and “Excessive†Fundraising," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 97(2), pages 193-212.
    11. repec:cup:judgdm:v:9:y:2014:i:4:p:303-315 is not listed on IDEAS
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    Cited by:

    1. Abraham, Diya & Corazzini, Luca & Fišar, Miloš & Reggiani, Tommaso, 2023. "Coordinating donations via an intermediary: The destructive effect of a sunk overhead cost," Journal of Economic Behavior & Organization, Elsevier, vol. 211(C), pages 287-304.
    2. Billur Aksoy & Silvana Krasteva, 2020. "When does less information translate into more giving to public goods?," Experimental Economics, Springer;Economic Science Association, vol. 23(4), pages 1148-1177, December.
    3. Kwanho Suk & Triza Mudita, 2021. "Charitable Organizations’ Cost Disclosure Mitigates Overhead Aversion," Sustainability, MDPI, vol. 13(23), pages 1-12, December.
    4. repec:cup:judgdm:v:17:y:2022:i:2:p:315-330 is not listed on IDEAS
    5. Diederich, Johannes & Epperson, Raphael & Goeschl, Timo, 2021. "How to Design the Ask? Funding Units vs. Giving Money," Working Papers 0698, University of Heidelberg, Department of Economics.
    6. Christian Rainero & Alessandro Migliavacca & Sara Reano, 2021. "Overheads as a Performance Indicator in the Local Public Sector Organizations," International Journal of Business and Management, Canadian Center of Science and Education, vol. 15(8), pages 1-1, July.
    7. Margaret Samahita & Leonhard K. Lades, 2021. "The Unintended Side Effects of Regulating Charities: Donors Penalise Administrative Burden Almost as Much as Overheads," Working Papers 202106, School of Economics, University College Dublin.
    8. Glen William Spiteri, 2022. "Does the evaluability bias hold when giving to animal charities?," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 17(2), pages 315-330, March.
    9. Yuan Tian & Chiako Hung & Peter Frumkin, 2020. "Breaking the nonprofit starvation cycle? An experimental test," Journal of Behavioral Public Administration, Center for Experimental and Behavioral Public Administration, vol. 3(1).
    10. Diya Elizabeth Abraham & Luca Corazzini & Miloš Fišar & Tommaso Reggiani, 2021. "Delegation and Overhead Aversion with Multiple Threshold Public Goods," MUNI ECON Working Papers 2021-14, Masaryk University, revised Feb 2023.
    11. Yoo, Jenny Jeongeun & Song, Sangyoung & Jhang, Jihoon, 2022. "Overhead aversion and facial expressions in crowdfunding," Journal of Retailing and Consumer Services, Elsevier, vol. 69(C).
    12. Pham Tien Manh & Quang Le Huy, 2024. "Factors Impact on Financial Performance in Big 4 Banks in Vietnam: The Role of Corporate Social Responsibility Disclosure," Oblik i finansi, Institute of Accounting and Finance, issue 2, pages 58-69, June.

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    More about this item

    Keywords

    Charitable giving; Overhead; Philanthropy;
    All these keywords.

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • L30 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - General

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