Working Paper: CEPR ID: DP9963
Authors: Gani Aldashev; Esteban Jaimovich; Thierry Verdier
Abstract: We build an occupational-choice general-equilibrium model of an economy with the non-profit sector financed through private warm-glow donations. Lack of monitoring on the use of funds implies that an increase of funds of the non-profit sector (because of a higher income in the for-profit sector, a stronger preference for giving, or an inflow of foreign aid) worsens the motivational composition and performance of the non-profit sector. If motivated donors give more than unmotivated ones, there exist two stable (motivational) equilibria. Linking donations to the motivational composition of the non-profit sector or a tax-financed public funding of non-profits can eliminate the bad equilibrium.
Keywords: Altruism; Charitable Giving; Foreign Aid; Nonprofit Organizations; Occupational Choice
JEL Codes: D5; D64; J24; L31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increase in donations (D64) | Deterioration in the motivational composition of nonprofit organizations (L31) |
| Higher income in the for-profit sector (D33) | Increase in donations (D64) |
| Increase in donations (D64) | Shift toward management by less motivated agents (D73) |
| Foreign aid (F35) | Decline in prosocial motivation of nonprofit managers (L31) |
| Increase in funding from foreign aid (F35) | Attraction of less motivated agents to the sector (L85) |
| High level of altruistic motivation among donors (D64) | Sustain high-motivation equilibrium in the nonprofit sector (L31) |
| Increase in donations (D64) | Risk of crowding out altruistic motivation (D64) |
| Properly designed public financing policies (H40) | Enhance motivational composition of the nonprofit sector (L31) |
| Taxation (H20) | Encourage entry by motivated agents (L85) |
| Taxation (H20) | Deter unmotivated agents (D82) |