title: Behavioral economics. Avoiding overhead aversion in charity.
abstract: Donors tend to avoid charities that dedicate a high percentage of expenses to administrative and fundraising costs, limiting the ability of nonprofits to be effective. We propose a solution to this problem: Use donations from major philanthropists to cover overhead expenses and offer potential donors an overhead-free donation opportunity. A laboratory experiment testing this solution confirms that donations decrease when overhead increases, but only when donors pay for overhead themselves. In a field experiment with 40,000 potential donors, we compared the overhead-free solution with other common uses of initial donations. Consistent with prior research, informing donors that seed money has already been raised increases donations, as does a $1:$1 matching campaign. Our main result, however, clearly shows that informing potential donors that overhead costs are covered by an initial donation significantly increases the donation rate by 80% (or 94%) and total donations by 75% (or 89%) compared with the seed (or matching) approach.
authors.affiliation: Rady School of Management, University of California San Diego, 9500 Gilman Drive, La Jolla, CA 92093, USA. Center for Research in Experimental Economics and Political Decision Making (CREED), University of Amsterdam, 1018 WB, Amsterdam, Netherlands. ugneezy@ucsd.edu.
authors.forename: Uri
authors.initials: U
authors.lastname: Gneezy
authors.affiliation: Rady School of Management, University of California San Diego, 9500 Gilman Drive, La Jolla, CA 92093, USA.
authors.forename: Elizabeth A
authors.initials: EA
authors.lastname: Keenan
authors.affiliation: Rady School of Management, University of California San Diego, 9500 Gilman Drive, La Jolla, CA 92093, USA.
authors.forename: Ayelet
authors.initials: A
authors.lastname: Gneezy
mesh_terms: D000533:Altruism; D002608:Charities / Q000379:methods*; D060909:Economics, Behavioral; D005653:Fund Raising / Q000379:methods*; D037921:Gift Giving; D006801:Humans