Determinants of Donations in Private Nonprofit Markets

Cagla Okten and Burton A. Weisbrod

IPR working papers from Institute for Policy Resarch at Northwestern University

Abstract: We estimate the responsiveness of donations to a number of economic variables, including price, advertising, and the availability of revenue from such other sources as government grants and program service sales. Utilizing a set of IRS data on individual nonprofit organizations in each of seven industries‹including hospitals and higher education‹for the years 1982-1994, we find distinct overall patterns as well as notable variation across industries. A nonprofit organization's fundraising expenditures are estimated to exert two countervailing effects on donations‹the direct, advertising and information, effect augments donations, while the indirect effect, on the "price" of donating, has a negative effect. The net effect of the two is positive, but we do not find evidence that fundraising is carried to the profit-maximizing levels. In some industries, fundraising is substantially short of that level, while in other industries it is excessive, implying that the marginal return to fundraising is exceeded by the cost. Focusing on whether revenue from other sources affects donations to a nonprofit organization, we find evidence that revenue from either government grants or from the organization's own program sales activity generally does not crowd out private donations. To the contrary, in most industries there are significant positive effects.

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