Motivation This paper Literature Model Mission: Impossible? Diversity and economies of scale in the charitable sector Sarah Sandford, London School of Economics and Kimberley Scharf, University of Warwick and CEPR NGO Workshop, London School of Economics 26th May 2012 Sandford, Scharf Mission: Impossible? 1/ 44
Motivation This paper Literature Model Diversity in the charitable sector Nearly 72,000 charities, or 44.5% of all UK charities (171,000), have annual income less than £ 10,000 Over 5,000 new charities created each year. Over 200 Refugee Community Organisations in London alone. ( Source: Charity Commission & Evelyn Oldfield Unit ) Sandford, Scharf Mission: Impossible? 2/ 44
Motivation This paper Literature Model Points of light, doing good? “I have spoken of a thousand points of light, of all the community organizations that are spread like stars throughout the Nation, doing good.” (George Bush Senior, Presidential Inauguration Address, 1989) “The result of a big, strong society is that it will be administratively untidy. People will come together to do things in different ways and different places.” (Francis Maude, UK Minister for the Cabinet Office, 14th January 2011) Sandford, Scharf Mission: Impossible? 3/ 44
Motivation This paper Literature Model Diversity of missions: on the political agenda? There is a lot of money in charity – $240 billion in the US (2002) Voluntary contributions are a key funding mechanism for health and education Budget cuts are leading to increased reliance on voluntary contributions to charities “Charitable donations an important source of government revenue” (Canadian Parliament, February 12, 2012) Sandford, Scharf Mission: Impossible? 4/ 44
Motivation This paper Literature Model Fixed costs: on the political agenda? Fixed costs might include administration and accounting, fundraising activities, mortgage on premises Fixed costs are large - from 10% to 25% of charity’s income in Canada Meeting fixed costs is a major preoccupation of charities, and of governments concerned with their efficiency (eg, Institute for Philanthropy, 2009) (Charity Commission, 2005), (Fiona Mactaggart MP, 2004) Government funds initiatives to encourage sharing of fixed costs, eg NCVO, SCVO. Sandford, Scharf Mission: Impossible? 5/ 44
Motivation This paper Literature Model Our Questions Positive: How do economies of scale, preference diversity and income inequality affect diversity (number of charities, size of charities and missions of charities) in the charitable sector? Normative: Should we support diversity in the charitable sector when it has costs as well as benefits? Sandford, Scharf Mission: Impossible? 6/ 44
Motivation This paper Literature Model Answer has implications for efficiency and equity Efficiency: Pareto-dominated equilibria with separate providers arise with nonprofit providers in contestable markets Not so in private sector Distributional implications: who chooses to donate and to whom makes a difference from a redistributive point of view Agenda of missions is set by wealthy or numerous donor groups Number of missions affects who gets to distribute with whom Sandford, Scharf Mission: Impossible? 7/ 44
Motivation This paper Literature Model Some examples Healthcare clinics: one in larger village A, one in smaller village B, or one inbetween? How close to village A? School system: more emphasis on Catalan language and history, or Castillian? Or two separate systems? Development banks: separate banks for East and West Africa, or one institution? With what focus? Sandford, Scharf Mission: Impossible? 8/ 44
Motivation This paper Literature Model Sketch of model Model of private provision of collective goods Four types of individuals distinguished both by their income levels (high or low) and preference for variety of a public good ( A or B ) Variety is determined by provider’s mission Mission-specific fixed costs → mission diversity is costly Missions can serve the interests of group A only, group B only, or both Characterise the set of coalition proof Nash equilibrium missions Sandford, Scharf Mission: Impossible? 9/ 44
Motivation This paper Literature Model Constraints Noncooperative giving outcomes are inefficient No bargaining possible because donations are about splitting costs of public good Different preferences for missions = ⇒ joint funding requires mission compromise Sandford, Scharf Mission: Impossible? 10/ 44
Motivation This paper Literature Model Tradeoffs and outcomes Deviation incentives in moving from a compromise mission: Mission more aligned to agent preferences Donations must cover fixed costs CPNE characterised by either: Mission compromise (single mission) Mission fragmentation (two missions) Sandford, Scharf Mission: Impossible? 11/ 44
Motivation This paper Literature Model Key positive predictions Mission control : Rich or more numerous donor types exert more influence on the mission of “compromise” charitable projects Fragmented vs. centralised : the charitable sector is fragmented when fixed costs are low and centralised when fixed costs are high The effects of diversity : The number of charities is inverse U-shaped in diversity. Income growth : Income growth generally leads to greater fragmentation, income contraction creates centralisation Sandford, Scharf Mission: Impossible? 12/ 44
Motivation This paper Literature Model Normative Predictions: agreement on provision levels Fragmented missions can occur in CPNE but this outcome may be less efficient than the compromise mission Happens when fixed costs are “intermediate”... ...and groups of donors with the same preferred mission have unequal numbers or total incomes Policies aimed at alleviating excess fragmentation, such as government grants towards compromise missions, can backfire Sandford, Scharf Mission: Impossible? 13/ 44
Motivation This paper Literature Model Normative predictions: Disagreement on provision levels Compromise mission can occur in CPNE but it is less efficient than outcome with fragmented missions Happens when fixed costs are intermediate when groups of donors with the same preferred mission have equal numbers and incomes Sandford, Scharf Mission: Impossible? 14/ 44
Motivation This paper Literature Model Key normative predictions Income growth Income growth can create relatively inefficient fragmentation Government policy Relatively inefficient fragmentation can be overcome by non-targeted increases in charities’ fixed costs Inefficient centralisation can be tackled by non-targeted grants towards charities fixed costs Sandford, Scharf Mission: Impossible? 15/ 44
Motivation This paper Literature Model Literature Diversity and public goods provision : Alesina, Baqir and Easterly (1999), Horstmann and Scharf (2009), Andreoni et al (2011), Algan, Hemet and Laitin (2011) Fixed costs in the charitable sector : Andreoni (1998), Scharf (2011) Expropriation of the rich by the poor : Olson (1965), Bardhan, Ghatak and Karaivanov (2006) Benefits from mission compromise : Ghosh, Karaivanov and Oak, (2007) Sandford, Scharf Mission: Impossible? 16/ 44
Motivation This paper Agreement on levels Literature Disagreement on levels Model Basics Two groups, A and B , sizes N A and N B , respectively, both ∈ (0 , ∞ ). There is a private good and “varieties” of a public good corresponding to charities’ “missions” The public good could correspond to the welfare of others A variety is represented by a single parameter γ ∈ [0 , 1]. Sandford, Scharf Mission: Impossible? 17/ 44
Motivation This paper Agreement on levels Literature Disagreement on levels Model Charities and missions When γ = 1 the good is a local public good for those in community A Missions might correspond to religious ideology, or methodology (eg, 12-step vs CBT approaches to treating addiction), or a mixture of two goods (eg, primary and secondary edcuation). We assume that, for each variety γ ∈ [0 , 1], there exists a charitable project that converts donations into that variety. Sandford, Scharf Mission: Impossible? 18/ 44
Motivation This paper Agreement on levels Literature Disagreement on levels Model Charities and missions ctd. Charities who operate missions are strategically, black-boxed For each γ there exists a charity who will run a mission at γ Each mission incurs a fixed costs F Each has identical marginal costs of 1 Each faces a non-distribution constraint F + P γ = D γ Sandford, Scharf Mission: Impossible? 19/ 44
Motivation This paper Agreement on levels Literature Disagreement on levels Model Donors Donors have incomes ∈ { m , m } with m > m . Donors have perfect information about the charities that exist. No transactions costs of giving No transfers between donors (not needed when donors agree on levels of giving) Simultaneous move game played between donors Seek coalition-proof Nash Equilibria Sandford, Scharf Mission: Impossible? 20/ 44
Motivation This paper Agreement on levels Literature Disagreement on levels Model Preferences: the essentials Public and private good are normal There is a sufficient degree of complementarity between the public and private goods The valuation of a mission does not fall away too quickly as we move away from a donors’ ideal Sandford, Scharf Mission: Impossible? 21/ 44
Recommend
More recommend
