Nicholas P. Marudas
Auburn University at Montgomery
Fred A. Jacobs
Georgia State University
Abstract: Applying econometric tests to competing specifications of a model of donations using panel data on 838 U.S. nonprofit organizations (NPOs) from 1986-94, indicates the best specification is two-way fixed effects. This suggests that models of all prior studies of U.S. NPOs, which do not control for period-specific effects, are misspecified. Results from testing the best specification and accounting for endogeneity show U.S NPOs fundraise to maximize total revenues, and alternative sources of revenue do not crowd out donations. Theory is developed to infer that donor demand for output of hospitals and scientific research NPOs is price inelastic and price elastic, respectively.
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