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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
Additional contact information
Ganna Pogrebna: Warwick Manufacturing Group, University of Warwick
Sarah Sandford: London School of Economics

CAGE Online Working Paper Series from Competitive Advantage in the Global Economy (CAGE)

Abstract: We study contestability in non-profit markets where non-commercial providers supply a homogeneous collective good or service through increasing-returns-to-scale technologies. Unlike in the case of for-profit markets, in the non-profit case the absence of price-based sales contracts between providers and donors 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)
New Economics Papers: this item is included in nep-exp and nep-ger
Date: 2014
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http://www2.warwick.ac.uk/fac/soc/economics/resear ... /201-2014_scharf.pdf

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