Discussion Paper Details

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Title: When warm glow burns: Motivational (mis)allocation in the non-profit sector

Author(s): Gani Aldashev, Esteban Jaimovich and Thierry Verdier

Publication Date: May 2014

Keyword(s): altruism, charitable giving, foreign aid., non-profit organizations and occupational choice

Programme Area(s): Development Economics and Public Economics

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.

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Bibliographic Reference

Aldashev, G, Jaimovich, E and Verdier, T. 2014. 'When warm glow burns: Motivational (mis)allocation in the non-profit sector'. London, Centre for Economic Policy Research.