Article
A Theory of Outsourced Fundraising: Why Dollars Turn into “Pennies for Charity”
Journal of Economic Behavior and Organization
(2017)
Abstract
Charities frequently rely on professional solicitors whose commissions exceed half
of the solicited donations. To understand this practice, we propose a principal-agent
model in which the charity optimally offers a higher commission to a more efficient solicitor,
raising the price of giving significantly. Outsourcing is, therefore, profitable for
the charity only if giving is very price-inelastic, which is not supported by empirical
evidence. We show that outsourced fundraising can be optimal if: donors are unaware
of this practice; the professional solicitor better activates donors’ warm-glow feelings
toward the cause; or there is a significant fixed cost of fundraising. We argue that informing
the public of the mere existence of paid solicitations may be the most effective
policy available.
Keywords
- fundraising,
- solicitation,
- outsourcing,
- charitable giving
Disciplines
Publication Date
May, 2017
DOI
https://doi.org/10.1016/j.jebo.2017.02.017
Citation Information
Zdravko Paskalev and Huseyin Yildirim. "A Theory of Outsourced Fundraising: Why Dollars Turn into “Pennies for Charity”" Journal of Economic Behavior and Organization Vol. 137 (2017) p. 1 - 18 Available at: http://works.bepress.com/huseyin_yildirim/30/