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A theory of outsourced fundraising: Why dollars turn into “Pennies for Charity”

Zdravko Paskalev and Huseyin Yildirim

Journal of Economic Behavior & Organization, 2017, vol. 137, issue C, 1-18

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 (search for similar items in EconPapers)
JEL-codes: H4 L3 L5 (search for similar items in EconPapers)
Date: 2017
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