Donor Attitudes Toward Overhead Costs and the Effects on Nonprofit Organization

This dissertation is a collection of essays that explore the topic of overhead costs in the nonprofit sector. There is a tension that exists between donors and nonprofit organizations. Donors dislike their donations going toward overhead costs, preferring their donations be spent on programs. People who work for nonprofit organizations argue that spending on overhead costs is necessary to ensure quality programs. In my first essay, I use a set of classroom experiments to explore peoples' attitudes toward overhead costs. People dislike overhead costs, including specific costs like fundraising and salaries. When compared directly, people prefer fundraising over salaries. In my second essay, I test in laboratory experiments whether this aversion to overhead costs is robust enough that people will incur a cost to act on it. A substantial number of people are willing to pay for information about overhead costs and subsequently use this information to withhold donations from higher-overhead charities. In my third essay, I test how allocating money between overhead and program expenses impacts the financial success of nonprofit organizations. Allocating money toward overall overhead expenses and administrative expenses lead to increases in contributions, net assets, and the likelihood of survival. Allocating money toward fundraising has the opposite effect.