SPI Working Paper Series

WP #: 128

Date: Jan 2015


Other Sources

@ Other

SPI Funded Paper

Avoiding Overhead Aversion in Charity

     This paper was published in Science in 2014

    Uri Gneezy, Elizabeth A. Keenan, Ayelet Gneezy

    University of California-San Diego, CREED
    University of California-San Diego
    University of California-San Diego

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 compare 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; so 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% (94%) and total donations by 75% (89%) compared with the seed (matching) approach.

SPI Quick Look:
Informing donors that initial donations have been used to cover overhead costs significantly increases giving compared to traditional fundraising techniques.