Samaritan Bundles: Fundraising Competition and Inefficient Clustering in NGO Projects

Abstract

ABSTRACT This article provides a theoretical framework to understand the tendency of non-governmental organisations (NGOs) to cluster and the circumstances under which such clustering is socially undesirable. NGOs compete through fundraising for donations and choose issues to focus their projects on. Donors have latent willingness-to-give that may differ across issues, but they need to be ‘awakened' to give. Raising funds focusing on the same issue creates positive informational spillovers across NGOs. Each NGO chooses whether to compete in the same market (clustering) with spillovers, or to face weaker competition under issue specialisation. We show that equilibrium clustering is more likely to occur when the share of multiple-issue donors is relatively large, and when the fundraising technology is sufficiently efficient. Moreover, this situation is socially inefficient when the cost of fundraising takes intermediate values and the motivation for donors’ giving is relatively high. We illustrate the mechanisms of the model with several case studies.