Decomposing the Effect of Commercialization on Nonprofit Donations

Abstract

Whether commercialization crowds out nonprofit donations has been a concern for nonprofit professionals and scholars. If the crowding-out effect exists, is it because of donors’ reactions to nonprofit commercialization or nonprofits’ decisions to reduce efforts in fundraising? Using data from the National Center for Charitable Statistics on human service nonprofit organizations in the USA, this study examines the relationship between commercial revenues and donations, breaking the relationship into smaller parts to understand its composition. The results show that commercial revenues crowd out donations in human service organizations. An increase in 1 dollar of commercial revenues leads to a decrease in .14 dollar of donations. Up to 16% of the crowding-out effect is attributable to nonprofit organizations’ reducing fundraising activities. The crowding-out effect is not merely due to donors’ reactions to nonprofit commercialization.