1. The economic impact of non-profits with respect to
the State of the Economy, Nash Equilibrium and
Knightian Uncertainty
Almezy|Radhamony|Stark

2. AGENDA
I. Introduction
II. The Economics of Charitable Giving
III.The Game Theoretic Impact on Non-Profits
IV.Risk and Uncertainty in the Non-Profit Sector
V. Discussion (Conclusion)

3. NON-PROFIT IPO MODEL WITH
INTERVENTIONS

4. THE ECONOMICS OF CHARITABLE GIVING:
INTRO
Sea of Goodwill:
“There are 40,000 nonprofit organizations dedicated to serving the military and
veterans and an estimated 400,000 service organizations that in some way
touch veterans or service members.” –www.charitywatch.org
 “Sea of Goodwill”
 “After the Sea of Goodwill”
 “Chartering the Sea of Goodwill”

5. THE ECONOMICS OF CHARITABLE GIVING:
INPUTS
“In 2014, the largest source of charitable
giving came from individuals at $258.51
billion, or 72% of total giving; followed by
foundations ($53.97 billion/15%),
bequests ($28.13 billion/8%), and
corporations ($17.77 billion/5%).” –
www.nptrust.org
Sources of Donations
Individuals
Foundations
Bequests
Corporations
What about alternative capital and
the government?

6. THE ECONOMICS OF CHARITABLE GIVING:
INDIVIDUALS
Communal Relationship Exchange Relationship
Motivations
 Altruistic Donation
 “Warm Glowing” of giving
 Sense of Nationalism /
Patriotism
Motivations
 “Quid pro quo”
 Direct Benefit from Organization
 Financial Benefit
 Positive Image

7. THE ECONOMICS OF CHARITABLE GIVING:
BEQUESTS / PLANNED GIVING
“The property or money that you promise in your will to give to another person or
organization after you die” – Merriam Webster
Michael Guty bequeathed $6 million to libraries and veterans organizations in three
Connecticut communities.
Many bequests are in the form of endowments.
 Term Endowment- specific period of time /event
 Unrestricted- flexible
 Quasi-endowment- specific propose
 Restricted Endowment- principal is held , earnings
from investments used

8. THE ECONOMICS OF CHARITABLE GIVING:
CORPORATIONS

9. THE ECONOMICS OF CHARITABLE GIVING:
CORPORATIONS / TRENDS
 Corporations want to measure Return on Investment (ROI)
 Donors want “Collective Impact “
 Go through corporation versus foundation if perceived benefit
Operation Support Grants Challenging to Quantify Impact
Grants for Specific Initiative or Project Easier to Quantify Impact

10. THE ECONOMICS OF CHARITABLE GIVING:
FOUNDATIONS
Three Types
Individual e.g. Bill and Melinda Gates Foundation
 Community Foundations- Hartford Foundation for Public Giving
Corporate Foundations- Travelers Foundation

11. THE ECONOMICS OF CHARITABLE GIVING:
GOVERNMENT
The government funds non-profits through grants.
 Grants are challenging to get. It is not free money!
 Grants given based on needs of government .
“For example, in 2015 the US government through the Department of Veterans Affairs gave grants to
1,641 organizations that impacted veterans in one way or another. Many of the 1,641 organizations
that received awards were non-profit based.”

12. THE ECONOMICS OF CHARITABLE GIVING:
AGGREGATORS

13. THE ECONOMICS OF CHARITABLE GIVING:
ALTERNATIVE CAPITAL
 Social Impact Bonds (SIBs)/
Pay for Success (PFS)
 Investment Income
 Seed Money
Source: Forbes.com

14. THE GAME THEORETIC IMPACT ON NON-
PROFITS
Create an environment in which veteran non-profit organizations
effectively work together for the greater good of all needing
support
 Non-profit rivalry
 Seed money
 United funds
 Financial disclosure
 Social entrepreneurship

15. NON-PROFIT RIVALRY
3 characteristics that determine stability between non-profits:
1. Alliance formation rule: fundraising between one non-profit can affect
donations received by another non-profit
a. Unanimity rule
b. Aggregative rule
2. Extent to which fundraising efforts are either complementary or
substitutes
3. If an individual or group of non-profits abandon the agreement
Source: Aldashev, Marini, and Verdier 2012

16. SEED MONEY
seed capital: initial funds leveraged to
start a business
 Within this presentation “seed
capital” is referred to as initial funds
for a particular fundraising campaign
 Total contributions increase with the
amount of seed money
Sources: Investopedia; List, Lucking-Reiley 2002

17. UNITED FUNDS VS. DONATING TO SINGLE CHARITY
United fund: several charities under one
umbrella in which funds are then
dispersed to each charity as donors give
(indirect model)
Single charity: direct donations given to
specific charity
Source: Apinumnahakul and Barham 2012

18. FINANCIAL DISCLOSURE
Positives of transparency
 Market differentiation
 Attract more donations
 Boost accountability
 Public trust
Do you want to know how the money you donate is spent?
Why donors prefer disclosure
1. Publicity
2. Reveals the effectiveness of the
organization
3. Can understand how their funds
can have maximum impact
Source: Zhuang, Saxton, and Wu 2011

19. SOCIAL ENTREPRENEURSHIP
Social entrepreneur: an individual with creative
“solutions to society’s most pressing social
problems”
 Potential to decrease rivalry amongst non-profits
 Social ecosystem must be created … map of of
ecosystem identifying all players and
environmental conditions and the relationships
between them
Source: Ashoka 2016

20. RISK AND UNCERTAINTY
 Risk response of donors
 Networked nonprofits
 Philanthropic equity

21. RISK RESPONSE OF DONORS
h probability of securing donatio
Risk Response of donors based on perception of possible ‘Lemons’

22. NETWORKED NONPROFIT
Source: Jane Wei-Skillern, Sonia Marciano “The Networked Nonprofit” Spring
2008.
Traditional non-profit
 Focus on organization growth
 Follow hub and spoke model for any
kind of partnership with other
organizations
 Compete with nonparticipating
organizaqitons and thrive to contorl
the participating organizations
Networked non-profit
 Focus on achieving its mission by
building network
 Follow network model containing
nodes, to collectively strive for
achieving the mission
 Form long term partnership with
trusted peers to tackle the mission on
multiple fronts

23. PHILANTHROPIC EQUITY
 Capacity building investments by donors
committed towards the growth of the nonprofit
organization
 Add to the seed money
 Encourages the formation of innovative nonprofit
organizations
Philanthropic equity is the enterprise level investments intended to subsidize
organizations until they reach a point when their activities are fully sustained by
donors.
Source: “A new way to invest in nonprofits” http://www.forbes.com/2010/11/04/nonprofit-finance-fund-intelligent-investing-equity.html

24. DISCUSSION
 Complexity of non-profit funding environment
 Competitive obstacles
 Seed money
 United funds
 Financial disclosure
 Social entrepreneurship
 Risk and uncertainty
 Lemon model
 Networked non-profit
 Philanthropic equity

25. QUESTIONS?!?