Monday, January 23, 2017

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Visible Hearts, Invisible Hands

invisiblehandThe Economics of Charity


Roxanne Alvarez and Veronique de Rugy

When Hurricane Katrina ripped through the Gulf Coast on August 29, 2005 and Hurricane Rita followed just three weeks later, they both left devastation and desolation in their wakes. They also left a new standard of charitable giving. According to the Washington Post, after Katrina, private nonprofit organizations raised $3.27 billion for the storm’s victims.[1] While this is a record amount of money, it is in keeping with Americans’ history of generosity.

Today, the charitable sector represents more than 2 percent of gross domestic product in the United States. According to some 2001 data, 90 percent of U.S. households donate an average of $1,623 to nonprofit organizations.[2] To put this number in perspective, social scientist Arthur Brooks explains that “Americans give three and a half times as much as the French, seven times as much as the Germans, and 14 times as much as the Italians. To give an idea how much Americans give, consider the fact that American annual charitable giving exceeds the entire GDP of many European countries, such as Norway and Denmark.”[3]

In other words, Americans give a considerable amount of their earnings away every year.

So, Americans give money away, but why do they give?  And how do nonprofits handle that money? This article attempts to address those questions by focusing on the economic aspects of charity and charitable giving. It will look at the motivations and the incentives of people who give money to nonprofits as well as the spirit and strategy behind the nonprofit world. Finally, there will be some discussion about novel ways that nonprofits could operate to allow them to fulfill their independent missions better, while becoming self-sustaining and economically viable organizations in the long run.

Why Give?

Ideology

What drives people to give? It may just be training. We learn early on—and the message is reinforced throughout our lives—that sharing and giving are virtuous, particularly when directed toward those less “fortunate.” From where did this message come? Research suggests that, whether or not one is religious, the notion stems from the pious philosophy of serving others that is associated with many religions.[4] In fact, researchers have found that those who are more religious, either formally as part of a specific group or informally through private prayer, are often more empathic and altruistic as well.[5]

This is consistent with Brooks’s findings. In his 2006 book, Who Really Cares: The Surprising Truth about Compassionate Conservatism, he found a considerable “charity gap” along religious lines, on average. In his observations, charity included formal charitable acts such as donating time and money to an identified organization (secular or religious), informal activities such as lending money to family and friends, and just generally being more law abiding. He noted that people who identified themselves as religious were 57 percent more likely “to help a homeless person” than those who considered themselves non-religious.[6]

Religion, however, is not the only factor that influenced charitable giving. Brooks also found that charitable giving is highly correlated to one’s perception of government intervention.

A person who goes to church every week and strongly rejects the idea that it is the government’s responsibility to redistribute income will give, on average, 100 times more money to charity each year than a person who never attends a house of worship and strongly believes that the government should reduce income differences between people. The religious person who is a government skeptic will also give about 50 times more to explicitly nonreligious causes. In other words, attitudes about the government compound the charity gap we see due to faith.

Brooks’s research underscores the personal nature of charity. Giving is a very personal decision. Often, we give out of sense of connection to charitable causes. If that charity embodies a philosophical spirit we admire or works toward a goal we believe in, we are more likely to donate when we can.

Hope for Change

And that one donation could be the start of something big. Philanthropy often exhibits a ripple effect: A donation to one nonprofit can extend well beyond that organization. For example, the existence of one nonprofit could serve as a catalyst for other community services or activities to spring up or grow. The support these activities garner could then drive donations to other, perhaps smaller, nonprofits—a kind of “tipping point,” as discussed by journalist Malcolm Gladwell. Gladwell suggests that a number of relatively small steps toward one goal can have multiple, far-reaching, and even unintended effects.[7] Gladwell posits that this tipping point phenomenon can lead to what he calls “social epidemics,” seemingly random and sudden changes that happen around us, but eventually reach a level of “critical mass” that facilitates change on a grand scale.[8] Economist Tyler Cowen, however, suggests that, while contributing to a notable cause that has received a lot of media attention because of its suddenness or magnitude—think natural disasters like the 2004 Indian Ocean tsunami or Hurricane Katrina or the terrorist attacks of September 11—could be the most effective way to make a difference in that specific circumstance, it is likely still more valuable to remain consistently loyal over the years to a few charities. Sustaining charitable giving in different areas allows marginal momentum to build toward lasting social change.[9]

Social Entrepreneurship

Economists Virgil Storr and Emily Chamlee-Wright have successfully demonstrated that lasting social change can best be brought about by social entrepreneurs. According to them, “Social entrepreneurs try to cure what ails society, and they judge their activities by their success in bringing about desired transformations. Because of their close ties to the community, they are often alert to neighborhoods’ needs in a way that government agencies are not. Social entrepreneurs don’t just fill the gaps in needed services-they also work to galvanize the support that is essential for community resilience.”

These entrepreneurs operate in non-market environments, and rather than trying to maximize profits like other entrepreneurs do, their goal is to maximize social changes. These changes are varied in nature: end slavery, bring resiliency skills to New Orleans, end teen pregnancy, and so on and so forth.

Drawing from their knowledge of local communities, ideas, capacities and resources, as well as the social arrangements that rule the communities they operate, they come up with innovative solutions required for sustainable social transformation.

As Storr and Chamlee-Wright explain, “A feedback mechanism akin to profit and loss guides social entrepreneurs in their local endeavors. Social entrepreneurs must rely on community support to drive their agendas.” In other words, because they need the community to achieve their goal and rely on its feedback from the community, entrepreneurs have an incentive to give the community what it wants to get help and achieve change. This two-way street very likely makes social entrepreneurs better social change agents than anyone else.

Economics

While there is plenty of discussion about the psychological reasons why people may be motivated to help others, the economic reasons for doing so may not be as obvious. Philosophers and economists have discussed the economics of charity for centuries. One of the founding fathers of economic thought, Adam Smith, wrote considerably about charity (though he is perhaps best remembered for his contributions to understanding how societies prosper). Smith asserted that self-interest and “sympathy” were complementary and that citizens were interconnected and often relied upon one another.[10] Likewise, economist Milton Friedman stated, “There is no inconsistency between a free market system and the pursuit of social and cultural goals, or between a free market system and compassion for the less fortunate.”[11]

Since charitable giving is a personal decision based on our own preferences and budget constraints, it leads to the conclusion that charitable giving is just like the purchase of any other good. That is, contributions depend on how much one earns and how costly it is to give. Take the cost of giving, for instance. Studies have shown that the tax deductibility of charitable donations does make a difference in the amount of money people choose to donate. Suppose, for instance that an itemizing taxpayer faces a marginal tax rate of 35 percent. By giving $1, the donor will pay 35 cents less in taxes for a net gift of 65 cents. Further reductions in tax liability can be attained if the donor decides to contribute an appreciated asset. In this case, the donor can deduct the market value of the asset and does not have to pay taxes on the accrued capital gain. The capital gains tax of up to 15 percent is avoided, while the charitable deduction saves 35 percent in taxes. Thus the tax savings approaches 50 percent of the value of the gift. And since, for such individuals, the estate tax would otherwise take 45 percent of the value, the “cost” to the giver is quite a small price for the personal satisfaction obtained. Does it matter? It seems that it does. Data from a survey of 200 big donors are suggestive of the impact that taxes have on giving.[12] The study reveals that “awareness of tax advantages” was ranked the third most important motivator for making a charitable donation.[13]

But what happens when the tax status of donations change? According to economist Martin Feldstein, if charitable donations were no longer deductible, or if the deductions were limited, affected taxpayers are likely to cut their charitable giving by as much as the increase in their tax bills, leaving their remaining income and personal consumption unchanged.[14] Several studies in the 1990s confirm that trend. For instance, in the aftermath of the 1986 Tax Reform Act, giving levels of those faced with a lower marginal tax rate decreased relative to those who did not face a different marginal tax rate.[15] In other words, an increase in the cost of giving will reduce the amount donated to charity.

On the other hand, people who donate their time are not likely to make such decisions based on the tax code. However, it is also possible that a reduction in the tax deduction (hence, an increase in the cost of giving) would give an incentive to people to give their time rather than their cash. This potential substitution effect would likely depend on the donor’s opportunity cost, in other words, how much one values time versus money.

Your Money or Your Life?

Economists do not have much to say about why people give to charity, but they do discuss what type of charitable giving is more helpful. Is it better to give money or time? Certainly, both time and money can be beneficial to some degree. However, economic reasoning and our understanding of demand, supply, and markets teaches us that some actions are likely to be more effective than others. While donating money seems an impersonal response to a situation that, because of the immediacy of media coverage, often feels very personal to us, we should remember that money commands goods and services. It may not make us feel as good to send money as it would to actually “do something,” but for most of us, it’s much more effective. Donating money allows groups that specialize in disaster relief to quickly purchase and ship the items that are most needed in the devastated areas. Furthermore, while people’s desire to work and help victims of disasters is commendable, non-skilled labor is often not really useful. In fact, it might end up being more of a burden than a benefit. Finally, although donating goods is often people’s first impulse, many of the international relief organizations are quick to point out it’s actually not a very good option as donors will send random goods and duplicates that can, again, become more of a burden than a benefit.

Roll Over. Roll Over. It’s Crowded

Perhaps of more concern is the real substitution effect in charitable giving called “crowding out.” According to Brooks, numerous studies by economists over the past decade have demonstrated that a dollar in government spending on nonprofit activities directly displaces between 25 and 50 cents of private giving.[16] He adds,

The highest level of this ‘crowding out’ occurs in assistance to the poor and other kinds of social welfare services—including to religious organizations—indicating that government social spending for the needy benefits recipients, but only by about half its face value. While less than a full-blown indictment of the usefulness of public money, it still means that the true effects of government assistance are weaker than government officials and nonprofit proponents think they are.[17]

This is mainly explained by the fact that when the government provides welfare goods, it often appears as if it does it for free. It makes it very hard for the private sector to compete, and create a serious disincentive for an interested firm to enter that market. In fact, this is what explains in part the gap between charitable giving in America and in Europe, where government welfare systems are more generous than in America, driving away any potential competitor from entering the market.

Up until the Great Depression, charity, especially in its original form of assistance to the poor, was strictly privately funded. The birth of a new “welfare state” in the United States shifted charitable activities away from simply assisting those “in need” and moved into other areas of social welfare.[18] During the economic hardships of the 1930s, many private charities were not able to garner enough financial support to keep operating, as even the wealthiest of donors had to come to terms with fewer resources of their own. So government stepped in to fill this void and has not stepped away since. One of the consequences of government’s intervention in charitable work, likely an unintentional one, is that even when the economy improved, private charities never quite regained their position in providing charitable services that they had before the Great Depression.[19]

A new addition to government budgets, public welfare spending skyrocketed under the New Deal of the 1930s and then again during the Great Society of the 1960s. The government’s more prominent role in funding and implementing social welfare programs earned kudos from social and labor activists, who saw an opportunity to expand their interests to other areas aside from poverty initiatives.[20] On the other hand, critics of publicly funded charity noted that many of these new social and economic programs were actually hurting the vulnerable populations they were trying to help.[21] The government’s expanded role in social welfare policies and programming was paving a precarious path toward economic dependency for generations to come.[22] The economic literature is full of examples of distortions, wastes, fraud, and abuses resulting from the public provision of goods that should be left the private sector. Certainly, Americans saw first-hand after Katrina that the private sector was better able to respond to disaster victims than FEMA and the federal government.

The Nature of the Nonprofit Firm

There is no doubt that nonprofits and charitable organizations truly saved the day after Hurricane Katrina destroyed New Orleans.[23] And they needed money to do that. In New Orleans for instance, using money donated to them, nonprofits were able to provide disaster victims with shelter, food, medicine, and building supplies to rebuild their houses. For that reason it is important to consider the connection between donations to nonprofits and the way that nonprofits spend those donations, the ways in which nonprofits function, and ways in which nonprofits could be more effective. After all, if nonprofits are effectively the front line of disaster, then the more efficient they are, the better off disaster victims will be.

According to the Independent Sector, a membership coalition of charities and foundations, the nonprofit field consists of “hospitals, museums, schools, homeless shelters, houses of worship, symphony orchestras, research centers, youth groups, and many other organizations in every community across the nation. These charitable groups are sometimes collectively referred to as the ‘independent sector’ to emphasize their unique role in society, distinct from business and government.”[24]

These private nonprofit organizations are significant players in the arts, education, medical care, and other sectors. Often, nonprofits enjoy significant tax breaks, ostensibly because they offer something that for-profits do not.

The organizational structure of a nonprofit may look like that of a for-profit company in many ways—there are administrators, a governing board, and, depending on its size, a number of staff performing the organization’s main duties. The main distinction between the two is that while for-profits focus on maximizing profits for their company’s efforts, nonprofits don’t. More often, they have missions that are solely to serve the community or society, in the broadest sense.

Questions of Efficiency

There is a common concern that private nonprofit organizations, while more efficient than government, might be less efficient than for-profit entities. For instance, a recent report published in June based on a 2008 survey by the Brookings Institution shows that about one-third of Americans surveyed said they had little or “no confidence in charitable organizations.”[25] The majority (70 percent) reported that they thought charities wasted “a great deal or a fair amount of money.”[26] With those kinds of numbers, nonprofit charities have much room to improve their reputations and, by doing so, enhance their success.

Some of the data reinforce this perception. For instance, nonprofits do have little incentive to be accountable to their donors. This is because donors to charities do not seem to behave “rationally” in the economic sense. Economist John List of the University of Chicago has shown that donors often tolerate high administrative costs, fail to monitor charities, and do not insist on measurable results—the opposite of how they act when they invest in the stock market.[27] Moreover, List and his Yale University co-author Dean Karlan have shown that most donors won’t even respond when they have opportunities to be more effective in their giving.[28] For instance, a matching pledge—when one donor gives a dollar, some other donor pledges to give a dollar more—theoretically increases charitable contributions, enticing donors by the idea that their dollars are going to go further. Yet, the authors find that the size of the match does not seem to matter. When the pledge is for $2 or even $3 to match an outside dollar, donors do not, in the aggregate, give more money. One reason, List argues, is that donors do not behave like customers. Once they donate the money, they do not have to bear the consequences of their “bad” charitable decisions. In addition, few are willing to monitor their donation, which often can only be done at high cost, in terms of time or effort. So instead, most donors will content themselves with the feeling that they have done some good, happy to deceive themselves about the effectiveness of their donation.

A direct consequence of this behavior is that nonprofits rarely feel the pressure or the need to be accountable to their benefactors. The lack of accountability leads to poor decision making and poor results, with little incentive to correct things.

Others argue that the relative inefficiency of nonprofits has much to do with who works for them. There is a common perception that those who have chosen to work in the nonprofit world are doing so for selfless reasons. There may be some truth to that given that this professionally altruistic behavior is often a financially sacrificial step toward the “greater good” of humanity. Yet, as discussed earlier, even to do something for altruistic reasons serves a self-serving purpose—the pleasure acquired from helping others, changing the world, or saving it. Selfless or not, there is evidence that few CEOs or others in the executive ranks of nonprofit organizations are MBAs or have the equivalent experience of their counterparts in a for-profit company. Studies show that this is likely because nonprofits cannot afford to attract people with this level of educational and professional experience.[29] Having work their ways up through the ranks of the organization after spending years providing direct services for the organization’s clients, many nonprofit managers are unprepared for the responsibility.[30] Some organizations hire their administrators with the hope that they will be able to head fundraising efforts in addition to leading the organization in its mission. Few nonprofits, especially the very small, grassroots operations, can afford to hire a department full of development or fundraising professionals. Therefore, it is not uncommon for the task of locating and applying for funding to be spread among the most senior staff and a few program staff, stretching staff time and resources even further.

Because of the non-monetary reasons people enter the charitable workforce, employers expect nonprofit employees to be willing to be paid less than their for-profit counterparts. This has serious implications for the operation and staffing of nonprofits. The pay difference between the sectors certainly depends on the professional position, but the disparity can be significant. For example, a senior accountant can earn $50,575 a year in a nonprofit organization, while earning $61,731 on average in a corporate setting; similarly an IT professional can earn $72,282 in a nonprofit, while potentially having an annual salary of $87,164 in a for-profit company.[31] The salary differences are even greater for attorneys and staff recruiters—$64,105 in a nonprofit compared to $113,923 in a for-profit setting for attorneys and $37,815 for nonprofit recruiters compared to $63,570 in a corporate position.[32]

These compensation gaps could have one of two consequences, neither of which reflects favorably on charitable organizations. Lower salaries could mean that only people with the lowest opportunity costs will choose to work in the field, while the most talented or qualified individuals go elsewhere. Conversely, those who may have chosen the field to serve a particular cause may not be able to sustain their own personal goals on such low salaries, ultimately choosing to switch careers and then simply volunteering or donating money to their favorite charities. In either case, charitable and other nonprofit organizations and those they serve will lose out.

In his book Uncharitable, self-proclaimed social entrepreneur Dan Pallotta makes the case that if nonprofits were “allowed” to pay their staff more, then more talented people would be attracted to and retained in the field.[33] Pallotta points out that there is a “market for altruism” and that it should be free to distribute altruism much like markets allocate other resources based on the basic economic principles of supply and demand.[34] In other words, a nonprofit would become much more efficient if it were run more like a business.

Pallotta identifies five specific ways in which he believes that nonprofits are limited in how they conduct their charitable business.

  • No competitive compensation
  • No meaningful advertising
  • No ability to take risk on new ideas
  • No ability to invest in the long term
  • No access to capital markets

Pallotta suggests nonprofits willing to make changes in these areas would raise both awareness about their case and funds for their causes. Thus he challenges nonprofits to adopt more long-term strategies. For example, they should considering advertising as a form of investment in their operations and not simply as a short-term means of garnering financial support.  They should access investment capital markets in order to accumulate the necessary funds to advance new ideas and increase productivity over time.[35]

In a similar vein, economist Tyler Cowen asserts that like other goods, “caring” can be induced in a market where charitable causes are widely promoted. After raising awareness about a charitable cause (e.g., Lance Armstrong’s LIVESTRONG yellow bracelet), charitable donations, simply by their sheer numbers, can be most effective in working toward a charitable mission.[36]

Helping the Helpers

While nonprofits can obviously function better, things might not be as bad as they seem. Recent theoretical work has challenged the notion that nonprofits are necessarily inefficient. One study shows that a competitive market does discipline nonprofit management. Another argues that when consumers organize around private information to produce a good for their own consumption, as with “consumer cooperatives,” nonprofits are efficient. A third study demonstrates that, since hospitals operate in competitive markets, nonprofit hospitals are not sold at “too low” of a price, and the market values nonprofit hospitals as efficiently as for-profit ones.[37]

And things will only get better. As a result of the proliferation and growth of nonprofit organizations in recent years, other professional fields have emerged to work with them to ensure their efficiency and effectiveness. The field of philanthropy and fundraising—assisting those seeking funding for their programs, as well as those looking to start or run their own charitable organization—has become big business in its own right. Over the years, many organizations have been established solely to connect nonprofits with donors looking for giving opportunities. Services include trainings and written and web-based materials on how to establish a nonprofit, manage it, and, most importantly, keep it going.[38]

Consulting firms have also emerged to work with philanthropists deciding what causes and charitable organizations to support.[39] For the average donor, whether with a small amount of money to give or thousands to spend, it is often overwhelming to untangle and decipher the number of nonprofits and their missions. The scandals and stories that get disseminated about corruption and mismanagement in many nonprofits—even some of the more reputable organizations have been plagued by such bad press—add to the challenge of choosing a nonprofit.

There are also various online clearinghouses of information[40] and organizations established to serve as matchmakers of sorts between philanthropists or charitable grant makers and nonprofits.[41] Such accessible resources allow potential donors, especially those who only can give their money or time occasionally or sparingly, to inform themselves about which charities they want to support. The existence and expansion of the nonprofit sector has opened opportunities for other businesses and professions to contribute to the world of charitable work.

Handing Down

Charitable work has evolved tremendously from the days of almshouses and bread lines. Charitable organizations have become, or are striving to become, multimillion-dollar operations fed by millions of often invisible small donors that not only serve the most destitute part of society, but also the general social welfare and public health. With nonprofits continuing to voice concerns about scarce financial support and increased competition for fewer donor dollars, it may be time for a new, less-fettered approach to charitable work.

On the donor side, a key element is to find ways to lower the opportunity cost of donation as much as possible. That could mean for instance allowing larger amounts of charitable giving to be deducted from donors’ tax bases.[42] On the nonprofit side, it is vital to let social entrepreneurs in particular and nonprofits in general get involved to the maximum extent of their abilities. That means that the government should get out of the way. The private sector cannot compete with a public competitor that claims to be providing charity for free and is often scared away from entering this market.

Finally, nonprofits need to free themselves from self-imposed constraints in order to be able to earn profits for their efforts, pay their staff competitive wages to carry out their lofty missions, and promote their organizations in ways that can provide long-term organizational autonomy and effectiveness certainly seem like serious proposals to consider. With enough momentum, perhaps innovation in nonprofit charities will reach its own tipping point toward creating lasting social change. The most benevolent hand may well be an invisible one.


[1] Jacqueline Salmon and Leef Smith, “Two Thirds of Katrina Donations Exhausted,” Washington Post, February 27, 2006, A01.

[2] Lise Vesterlund “Why do People Give?” in Richard Steinberg and Walter W. Powell, eds., The Nonprofit Sector, 2nd edition (Hartford, CT: Yale Press, 2006), http://www.pitt.edu/~vester/whydopeoplegive.pdf/.

[3] Marvin Olasky, “Money, Time, Blood: Interview with Scholar Arthur C. Brooks on How Religious Belief Affects Charitable Giving,” World Magazine, December 9, 2006, http://www.worldmag.com/articles/12493/.

[4] T. Smith and J. Kim, “Empathy, Altruism, and Religion,” paper presented at American Sociological Association conference, August 2004, 14, http://www.allacademic.com/meta/p108451_index.html/.

[5] Ibid.

[6] Arthur Brooks, Who Really Cares, http://www.arthurbrooks.net/whoreallycares/statistics.html/.

[7] Tyler Cowen, Discover Your Inner Economist (New York: Penguin Group, 2007), 199.

[8] Malcolm Gladwell, What is the Tipping Point?, http://www.gladwell.com/tippingpoint/index.html/.

[9] Cowen, Discover Your Inner Economist, 193 and 199.

[10] Library of Economics and Liberty, Adam Smith: The Concise Encyclopedia of Economics, http://www.econlib.org/library/Enc/bios/Smith.html/.

[11] Milton Friedman, Free To Choose: A Personal Statement (New York: Harcourt Brace Jovanovich, 1980), 140.

[12] Russ Prince and Karen File, The Seven Faces of Philanthropy: A New Approach to Cultivating Major Donors (San Francisco: The Jossey-Bass Nonprofit Sector Series, 1994).

[13] The seven motivations were in descending order of importance: 1) pragmatic considerations of personal and community benefits; 2) devotion to religious principles and institutions; 3) awareness of tax advantages; 4) interest in social functions and networks attached to charitable activities; 5) perceived obligation to repay an institution for past services received; 6) altruism as a moral imperative; and 7) desire to continue family tradition of giving.

[14] Martin Feldstein, “A Deduction from Charity,” Washington Post, March 25, 2009, A15.

[15] Gerald Auten, James Cilke, and William Randolph, “The Effects of Tax Reform on Charitable Contributions,” National Tax Journal 45 (1992): 267–90. See also Charles Clotfelter, “The Impact of Tax Reform on Charitable Giving: A 1989 Perspective,” in Joel Slemrod, ed., Do Taxes Matter? (Cambridge, MA: MIT Press, 1990).

[16] Olasky, “Money, Time, Blood”

[17] Ibid.

[18] Russell Roberts, “A Positive Model of Private Charity and Public Transfers,” The Journal of Political Economy 92, no. 1 (February 1984): 136–148.

[19] Ibid.

[20] Ibid.

[21]The Cato Institute, “How FDR’s New Deal Harmed Millions of Poor People” and “What’s So Great About the Great Society?”, http://www.cato.org.

[22] The Everyday Economist blog, http://everydayecon.wordpress.com/2006/05/19/the-economics-of-charity/ (accessed June 6, 2009).

[23] See Lenore Ealy, “Coordinates of Resilience”, Local Knowledge 2 (Arlington, VA: Mercatus Center at George Mason University, 2009), http://localknowledge.mercatus.org/articles/coordinates-of-resilience/ and Emily Chamlee-Wright and Virgil Storr, “Post-Disaster Recovery and Social Entrepreneurship”, Local Knowledge 2 (Arlington, VA: Mercatus Center at George Mason University, 2009), http://localknowledge.mercatus.org/articles/the-social-entrepreneur%E2%80%99s-role-in-post-disaster-community-recovery/.

[24] July Independent Sector, “The Nonprofit Almanac in Brief—2001,” http://www.independentsector.org/programs/research/facts_findings.html/.

[25] D. Rhode and A. Packel, “Ethics and Nonprofits,” Stanford Social Innovation Review, Summer 2009, http://www.ssireview.org/articles/entry/ethics_and_nonprofits/.

[26] Rhode and Packel, “Ethics and Nonprofits.”

[27] Tyler Cowen, “Investing in Good Deeds Without Checking the Prospectus,” The New York Times, June 15, 2006, Economic Scene, http://www.nytimes.com/2006/06/15/business/15scene.html?ex=1308024000&en=db43cea7a6f2b14b&ei=5090&partner=rssuserland&emc=rss/.

[28] Dean S. Karlan and  John A. List, “Does Price Matter in Charitable Giving? Evidence from a Large-Scale Natural Field Experiment,” (Yale Economic Applications and Policy Discussion Paper No. 13, April 10, 2006), http://ssrn.com/abstract=903817/.

[29] Dan Pallotta, Uncharitable: How Restraints on Nonprofits Undermine Their Potential (Medford, MA: Tufts University Press, 2008), 70–71.

[30] Trent Stamp, “Charity Doctors: The Need for a Non-Profit PhD,” Charity Navigator, April 13, 2002, http://www.charitynavigator.org/index.cfm?bay=content.view&cpid=64/.

[31] Rachel Zupek, “Maximizing a Nonprofit Salary,” CNN.com, http://www.cnn.com/2007/US/Careers/05/16/cb.profit/index.html/.

[32] Ibid.

[33] His counterargument to the premise that people who want to “make money in charity” are “obscene” is that it is a double standard to accept that a sports talent be paid multi-millions of dollars for his/her ability to raise substantial earnings for a sports club, while not thinking that a person leading an organization that is focused on eradicating poverty or hunger is worth more than what nonprofits are currently “allowed” to pay them. He is not suggesting that one professional is more deserving of the higher salary than the other, but rather he is saying that just as a competitive market determines sports figures’ salaries, so should it for nonprofit managers.

[34] Reason.tv, “Making Charity Pay,” http://reason.tv/video/show/714.html/.

[35] Pallotta, Uncharitable, 124.

[36] Cowen, Discover Your Inner Economist, 200.

[37] Paul J. Gertler and Jennifer W. Kuan, “Are Nonprofits Efficient? A Test Using Hospital Market Values” (working paper, DOI: 10.2139/ssrn.323922, February 11, 2003), http://ssrn.com/abstract=323922/.

[38] The Foundation Center, http://foundationcenter.org/.

[39] For example, see Arabella Philanthropic Investment Advisors, http://www.arabellaadvisors.com/pages/News.html (accessed May 27, 2009).

[40] Give Well, http://www.givewell.net/.

[41] The Foundation Center, http://foundationcenter.org/.

[42] That suggestion, however, interferes with the fiscal goal of simplification of the tax code.

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  • http://www.crispyontheoutside.com/ Baylen

    Very interesting, nicely sourced, and very well-written! And I'm not just being charitable in my compliments.

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  • Anne Linnekin

    Not having taken an economics class, a lot of the information in your paper was new to me and differs with some of my perceptions I had about nonprofits and government programs. Living in MA and reading this weekend about all the programs that Edward Kennedy sponsored to help the needy and the poor, do you think there are programs that the government initiates, like Head Start, City Year and medical heath care for children that do well for their citizens? Do you think nonprofits can step in and replace government programs for the needy and the poor or does the government pass legislation because there is a void that no outside group is filling?

    I thoroughly enjoyed reading your paper. It made me think about the way I look at issues and the way I vote on them.

    Anne

  • Anne Linnekin

    Not having taken an economics class, a lot of the information in your paper was new to me and differs with some of my perceptions I had about nonprofits and government programs. Living in MA and reading this weekend about all the programs that Edward Kennedy sponsored to help the needy and the poor, do you think there are programs that the government initiates, like Head Start, City Year and medical heath care for children that do well for their citizens? Do you think nonprofits can step in and replace government programs for the needy and the poor or does the government pass legislation because there is a void that no outside group is filling?

    I thoroughly enjoyed reading your paper. It made me think about the way I look at issues and the way I vote on them.

    Anne

  • Anne Linnekin

    Not having taken an economics class, a lot of the information in your paper was new to me and differs with some of my perceptions I had about nonprofits and government programs. Living in MA and reading this weekend about all the programs that Edward Kennedy sponsored to help the needy and the poor, do you think there are programs that the government initiates, like Head Start, City Year and medical heath care for children that do well for their citizens? Do you think nonprofits can step in and replace government programs for the needy and the poor or does the government pass legislation because there is a void that no outside group is filling?

    I thoroughly enjoyed reading your paper. It made me think about the way I look at issues and the way I vote on them.

    Anne