A Theory of Outsourced Fundraising: Why Dollars Turn into 'Pennies for Charity'

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2014-12-06

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Abstract

Charities frequently rely on professional solicitors whose commissions exceed half of total 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. This, however, clashes with empirical evidence. We show that paid solicitations can benefit the charity if: (1) donors are unaware; (2) donors have intense “warm-glow” preferences; or (3) the charity worries mostly about watchdog ratings. We argue that informing the public of the mere existence of paid solicitations may be the most effective policy available.

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Scholars@Duke

Yildirim

Huseyin Yildirim

Professor of Economics

Professor Yildirim joined Duke Economics in 2000 after receiving a Ph.D. from the University of Florida. He is an applied microeconomic theorist with broad interests. He has written on such varied topics as dynamic procurement auctions, charitable fundraising, committee design, and, most recently, career concerns in teamwork and tournaments. His work has appeared in top economics journals, including American Economic Review, Review of Economic Studies, Journal of Economic Theory, and RAND Journal of Economics.


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