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Avoiding Overhead Aversion in Charity

By: Uri Gneezy, Elizabeth A. Keenan and Ayelet Gneezy
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Abstract

Donors tend to avoid charities that dedicate a high percentage of expenses to administrative and fundraising costs, limiting the ability of nonprofits to be effective. We propose a solution to this problem: Use donations from major philanthropists to cover overhead expenses and offer potential donors an overhead-free donation opportunity. A laboratory experiment testing this solution confirms that donations decrease when overhead increases, but only when donors pay for overhead themselves. In a field experiment with 40,000 potential donors, we compared the overhead-free solution with other common uses of initial donations. Consistent with prior research, informing donors that seed money has already been raised increases donations, as does a $1:$1 matching campaign. Our main result, however, clearly shows that informing potential donors that overhead costs are covered by an initial donation significantly increases the donation rate by 80% (or 94%) and total donations by 75% (or 89%) compared with the seed (or matching) approach.

Keywords

Marketing Strategy; Philanthropy and Charitable Giving

Citation

Gneezy, Uri, Elizabeth A. Keenan, and Ayelet Gneezy. "Avoiding Overhead Aversion in Charity." Science 346, no. 6209 (October 31, 2014): 632–635.
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About The Author

Elizabeth A. Keenan

Marketing
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More from the Authors
  • When Less Is More: Consumers Prefer Brands that Donate More in Relative versus Absolute Terms By: Elizabeth A. Keenan, Anne V. Wilson and Leslie K. John
  • Paul Polman By: Elizabeth A. Keenan, Youngme Moon and Susie Ma
  • Bee-ing Better at Bombas By: Elizabeth A. Keenan, Youngme Moon and John Masko
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