Economic Theory Commons^™

A Theory Of Outsourced Fundraising: Why Dollars Turn Into "Pennies For Charity", Zdravko Paskalev, Huseyin Yildirim

Huseyin Yildirim

Charities frequently rely on professional solicitors whose commissions exceed half of total donations. To rationalize 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. Unable to regulate fundraiser contracts due to freedom of speech, …