Working Paper: CEPR ID: DP10179
Authors: Carlo Perroni; Ganna Pogrebna; Sarah Sandford; Kimberley Scharf
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: core funding; entry; not-for-profit organizations
JEL Codes: L1; L3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| fixed costs (D24) | inefficient selection of charities (D64) |
| fixed costs (D24) | donor preference for charities with lower fixed costs (D64) |
| fixed costs (D24) | barriers to entry for efficient charities (L31) |
| perceived risks associated with higher fixed costs (G31) | ineffective donor coordination (F35) |
| inefficient selection of charities (D64) | suboptimal choices by donors (D64) |
| fixed costs (D24) | coordination failures among donors (F35) |