Charitable Giving and NPOs Investment Decision in a Stochastic Dynamic Economy

Han Jiang and Aggey Simons ()
Additional contact information
Aggey Simons: Department of Economics, University of Ottawa
Authors registered in the RePEc Author Service: Aggey Semenov

Working Papers from University of Ottawa, Department of Economics

Abstract: This paper presents a dynamic model of charitable giving. At each period, donors contribute to a non-profit organization’s (NPO) endowment; the NPO provides a charitable good and invests in the financial market. Investments are made in a risky asset and a risk-free asset. To account for uncertainty, we introduce two types of shocks: donors’ income shock and financial market fluctuations. We show that the optimal share of disposable endowment, invested in risky asset, is constant. Donors’ strategy, whether to contribute or free-ride on the NPO’s investments, depends on donors’ shadow prices. Donors contribute when NPO’s endowment is relatively low. Large contribution levels encourage the NPO to participate in the capital market at the expense of providing charitable good. We show that the NPO prefers an environment with a lower rate of return on risk-free asset. NPO’s risk exposure to the financial market affects both NPO’s and donors’ decisions. However, risk exposures on donors’ side do not have any impact on parties’ decisions. Regulation analysis suggests that portfolio ceiling and provision floor are achievable.

Keywords: Voluntary Contribution; Public Goods; Charitable Investment; Risk Preference; Stochastic Differential Game; Gauss-Markov Process; Hamilton-Jacobi-Bellman Equations. (search for similar items in EconPapers)
Pages: 41 pages
Date: 2021
New Economics Papers: this item is included in nep-gth and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10393/42911 (application/pdf)

Related works:
Working Paper: Charitable Giving and NPOs Investment Decision in a Stochastic Dynamic Economy (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ott:wpaper:2113e

Access Statistics for this paper

More papers in Working Papers from University of Ottawa, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Aggey Semenov ().