Increasing the Size of the Pie: The Impact of Crowding on Nonprofit Sector Resources

Abstract

The number of nonprofit organizations is rapidly increasing, which has led nonprofit practitioners to complain of funding scarcity, nonprofit scholars to closely study nonprofit competition, and policymakers to consider increasing nonprofit barriers to entry. Underlying each of these perspectives is an assumption of limited financial resources. We empirically examine this assumption using county-level panel data on nonprofit human services organizations from the National Center for Charitable Statistics. Contrary to the limited resources assumption, our fixed-effects models show that increasing nonprofit density, at its current levels, has the effect of increasing sector financial resources in each county. We suggest that these findings prompt a tradeoff for policymakers. A sector with free market entry results in a nonprofit sector with more, smaller nonprofits, but such a sector may have the capacity to serve more people because it has more total sector financial resources. Conversely, a sector with higher barriers to entry would translate to a sector with fewer, larger nonprofits with less overall capacity due to fewer sector financial resources.