March 21, 2008
COMPETITION, CONTRACTIBILITY, AND THE MARKET FOR DONORS TO NONPROFITS
Marco A. Castaneda, John Garen and Jeremy Thornton published "Competition, Contractibility and the Market for Donors to Nonprofits" in the May 2008 issue of Journal of Law, Economics, & Organization. Here is the abstract:
This article investigates theoretically and empirically the effects of competition for donors on the behavior of nonprofit organizations. Theoretically, we consider a situation in which nonprofit organizations use donations to produce some commodity, but the use of donations is only partially contractible. The main results of the model indicate that an increase in competition (i) decreases the fraction of donations allocated to perquisite consumption and (ii) increases the fraction of donations allocated to promotional expenditures. Moreover, the effects of competition are magnified by the ability to contract on the use of donations. These hypotheses are tested with data on the expenditures of nonprofit organizations in a number of subsectors where competition is primarily local. We use across–metropolitan statistical areas' variation to measure differences in competition and proxy contractibility by the importance of tangible assets, which are more easily observed by donors. The estimated effects of competition and contractibility are consistent with our model.
For the entire article, see "Competition, Contractibility and the Market for Donors to Nonprofits," 24 J.L. Econ. & Org. 215 (2008), on the Journal of Economics & Organization website.
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