Ideals versus Dollars: Donors, Charity Managers, and Government Grants

Abstract

This paper demonstrates how changes in untied, lump-sum government grants or income from unrestricted endowments will affect the behavior of charities operated by managers with strong philosophical or professional commitments. An increase in such funds will reduce the charity's accountability to private donors and lower its fund-raising activities. The grant will not be spent entirely on raising the quantity of output. Instead, it will permit the charity manager to reduce his or her dependence on the costly solicitation of donors who do not completely share the manager's preferences. In order to understand nonprofit charities one must recognize both their diversity and the independent role of their managers in furthering this diversity. We will miss much of their special character if we view them as mere conduits seeking faithfully to reify the wishes of their contributors.' In this paper I demonstrate how an increase or a fall in untied, lump-sum government grants or income from unrestricted endowments will affect the behavior of charities operated by managers with strong philosophical or professional commitments to some service mixes rather than others. An increase in such funds will reduce the charity's accountability to private donors and lower its fund-raising activities. The grant will not be spent entirely on raising