Tangible information and charitable giving: When do nonprofit overhead costs matter?

Abstract

Nonprofit organizations in the U.S. have been under the pressure to demonstrate their “worthiness” by minimizing overhead costs. Prior experiment studies find that donors respond negatively to high overhead costs when overhead information is highlighted. In reality, donors receive all sorts of information about nonprofit organizations from various channels. While high overhead has been found to reduce donors’ perceived impact and donations, providing other types of tangible information can increase charitable giving by enhancing donors’ perceived impact. When other types of information are available, to what degree overhead aversion still exists? We use two online survey experiments to examine how information on overhead costs and donation use affect giving decisions in a single-organization and two-organization evaluation setting. We found that only a small proportion of people demonstrated overhead aversion when presented with a single organization. There was stronger evidence of overhead aversion when participants were asked to compare and choose between two organizations. Nonetheless, providing tangible information about what donations can buy mitigated overhead aversion in both settings. This study contributes to the growing experimental research on the relationship between overhead ratios and charitable giving, and provides practical insights for nonprofits hoping to ameliorate overhead aversion and increase donation support.