Signaling virtue: voluntary accountability programs among nonprofit organizations

Abstract

This article examines the structure of nonprofit voluntary accountability and standard-setting programs, arguing that these programs can be understood as collective action institutions designed to address information asymmetries between nonprofits and their stakeholders. Club theory and the economics of certification suggest that such programs have the potential to provide a signal of quality by setting high standards and fees and rigorously verifying compliance. Such mechanisms can signal quality because higher participation costs may allow only high-quality organizations to join. The article examines the implications of signaling theory using an original dataset on the structure of 32 nonprofit accountability programs across the globe. While many programs set high standards for compliance, the key distinction between strong and weak programs is the use of disclosure or verification mechanisms to enforce compliance. Contrary to theoretical expectations, compliance standards and verification do not appear to be substitutes in creating stronger voluntary programs.