Competition between charitable organisations for private donations

Competition between charitable organisations for private donations

A central problem for charitable organisations is that they do not derive revenues from their core philanthropic activities. Consequently they cannot survive unless they can derive revenues from other sources. The three major sources of these revenues are: (a) Government grants; (b) commercial activities that cross-subsidise the philanthropic activities; and (c) private donations. In each of these fund-raising activities they compete with other organisations, but none more so than in seeking private donations.

Consequently, this thesis is concerned with the competition for private donations among charities with similar aims. Fundraising efforts through government grant competition and commercial activities are not considered. The charities considered are located in Australia and Japan, a comparative analysis being an initial major purpose of the research. This was based upon the argument that the behaviour of charitable organisations will be influenced by local culture far more than profit making corporations facing global markets. There was, therefore, an interest in examining how different the forms of competitions might be in the countries.

Charitable organisations compete for private donations in two ways. The first is by an efficient and effective service to the charitable organisations‘ recipients. Unfortunately for fundraising, such service is not usually directly observable by potential donors. The second form of competition is the public provision of information, services and marketing and promotion to potential donors, specifically with the aim of eliciting donations. Competition in this form, of course, requires fundraising expenditures on the part of charitable organisations.

The effects of competition for donations on the behaviour of charitable organisations are investigated at both the theoretical and empirical levels. In particular, this thesis examines the effects of fundraising expenditure on donation levels, and how donation levels to organisations are affected by the level of competition in the market for donations. Such competition is treated as a form of Cournot oligopoly. The degree of competition can then be measured by the level of fundraising expenditure of 'like charitable organisations'. Like charitable organisations are those that serve similar purposes so that their philanthropic services are similar, i.e. in economic terms they are substitutes. This was tested among a group of charitable organisations providing in similar services in both Australia and Japan.

The effectiveness of donation raising behaviour of charities in Australia and Japan is considered by examining organisational financial accounts within the model framework. The application of the oligopoly model throughout this thesis has resulted in the following major findings. First, it was found that increases in total fundraising expenditure by all charities increases total donations to all charities but at a decreasing rate. Second, an increase in competition is related both closely and positively to fundraising spending and the total level of donations in the current year rather than previous years. Third, and again, supporting the oligopoly model, the fundraising expenditure of a charity‘s competitors relates both closely and negatively to the level of donations to that charity in the current year. Fourth, and very importantly, it was found that the numbers of volunteers associated with an organisation significantly increased its level of donations in the following year. Fifth, and finally, the impacts of organisational age and size, government grants and administrative costs vary across groups of charitable organisations, but still indicate the effectiveness of using the oligopoly model.

The thesis uses organisational level data to capture the competitive behaviour of charitable organisations, whereas most previous studies have analysed donors. Although charitable organisations in both Australia and Japan have the same perceived objectives, their behaviour differs due not only to cultural and political variations but with the size and history of charities. It appears that the model is much more appropriate for Australia than to Japan. The reasons for this are given. Most notably these differences appear to be due to the intense regulation of charities found in Japan.

The significance of the research lies not only in the empirical success of the modelling. It also lies in the fact that although charitable organisations play a crucial role in the delivery of public and private goods and services, there are relatively few attempts to pay attention to the economic analysis of this sector.