If Someone Else Pays for Overhead, Do Donors Still Care?

Abstract

To better evaluate the effectiveness of overhead-free donations on giving behavior, we seek to further investigate the robustness of the findings from Gneezy et al. using a nonstudent population. In an online experiment, we test whether (a) the level of overhead costs affects giving decisions and whether (b) overhead aversion disappears once donors are informed that an anonymous donor has already covered all overhead costs. Results show that donations decrease as overhead spending increases when donors have to pay for overhead. However, unlike the original article, we find mixed results when someone else covered overhead costs. Participants exposed to a nonprofit with a 33% overhead ratio where overhead was already covered still displayed overhead aversion. However, this aversion disappeared at a high overhead ratio of 67%. The overall results remain unchanged after controlling for demographics. Our results hold important implications for nonprofit organizations who must find a careful balance between appealing to donors for short-term financial gain and addressing the need to alter skewed donor expectations toward financial efficiency in the long run.

Is “Overhead” A Tainted Word? A Survey Experiment Exploring Framing Effects of Nonprofit Overhead on Donor Decision

“…Portillo and Stinn’s (2018) laboratory experiments confirm the existence of overhead aversion, and also find that donors are more willing to support fundraising expenses rather than salary-related costs when there is no overhead-free option. Using an online survey experiment, Charles et al (2020) also find that overhead aversion exists and that having another donor covering overhead costs does not always increase the likelihood of giving. Similarly, Tian et al (2020) confirm overhead aversion in their laboratory experiment and find providing additional information on a nonprofit’s performance and transparency can alleviate the aversion.…”

Pressure, Cost Accounting, and Resource Allocations: Experimental Evidence on Nonprofit Financial Decision-Making

“…Nonprofit literature provides considerable evidence of donor pressure resulting from an aversion toward overhead costs. High overhead increases the "price of giving," that is, the cost for one unit of charitable output (Weisbrod & Dominguez, 1986), or, alternatively, it decreases the perceived impact of giving (Charles et al, 2020;Gneezy et al, 2014). Chen (2016) argues that this holds true for major donors in particular who are more likely than small donors to pay attention to organizational performance metrics.…”

The Routledge Handbook of Taxation and Philanthropy

“…A low overhead ratio means that a large proportion of charitable income covers a charity's core program expenses, that is, the public goods they fund. Donors often perceive high overhead costs as wasteful and thus a negative indicator of a charity's performance (e.g., Charles et al, 2020). Other actors in the charitable sector share this negative perception of fixed costs, and there is considerable variation in cost structures across charities and charitable sectors, which is likely to reflect variation in technologies.…”