Do Donors Respond to Nonprofit Performance? Evidence from Housing

Abstract

Standard economic theories of nonprofits argue that donors largely cannot observe nonprofit performance. Using market data from the US nonprofit housing sector, federal financial data, and rare internal production reports, this study examines the effects of nonprofit performance on donations with a dynamic panel model. Donors in our sample are only weakly sensitive to indicators of nonprofit productivity. Our results imply that nonprofit performance theory might be distinct from other sectors in that nonprofits cannot expect increased performance to be meaningfully rewarded with funding.