28 October 2016

The Case for Restrictions on New Charities

"Drawing upon the all-pay auction literature, we propose a model of charity competition in which informed giving alone can account for the significant quality heterogeneity across similar charities. Our analysis identifies a negative effect of competition and a positive effect of informed giving on the equilibrium quality of charity. In particular, we show that as the number of charities grows, so does the percentage of charity scams, approaching one in the limit. In light of this and other results, we discuss the need for regulating nonprofit entry and conduct as well as promoting informed giving."

Information, Competition, and the Quality of Charities, by Silvana Krasteva and Huseyin Yildirimb