Are Donors Afraid of Charities' Core Costs? Scale Economies in Non-profit Provision and Charity Selection

Carlo Perroni, Ganna Pogrebna, Sarah Sandford and Kimberley Scharf

No 5024, CESifo Working Paper Series from CESifo

Abstract: We study contestability in non-profit markets when non-commercial providers supply a homogeneous collective good through increasing-returns-to-scale technologies. Unlike in the case of for-profit competition, in the non-profit case the absence of price-based sales contracts means that fixed costs are directly relevant to donors, and that they can translate into an entry barrier, protecting the position of an inefficient incumbent; or that, conversely, they can make it possible for inefficient newcomers to contest the position of a more efficient incumbent. Evidence from laboratory experiments show that fixed cost driven trade-offs between payoff dominance and perceived risk can lead to inefficient selection.

Keywords: not-for-profit organizations; entry; core funding (search for similar items in EconPapers)
JEL-codes: D40 L10 L30 (search for similar items in EconPapers)
Date: 2014
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Working Paper: Are Donors Afraid of Charities’ Core Costs? Scale Economies in Non-profit Provision and Charity Selection (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_5024

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