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How to increase charitable donations
Charities could raise more money from more people if they were to announce that a startup grant had been used to defray overhead expenses. Gneezy et al. told 40,000 potential donors that an initial donation (half of the target amount) would be used as seed money, as a source of matching funds, or for covering administrative and fundraising costs. When the money was assigned to cover administration, twice as many people made donations.
Science, this issue p. 632
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.
