Impacts of earmarked private donations for disaster fundraising

Abstract

Faced with large humanitarian emergencies like the earthquakes in Haiti and Japan, aid agencies have to decide how to collect money for their relief work. They can either decide to establish a special fund for the emergency and allow for earmarked donations or they can only allow for unearmarked donations. In this paper, we analyze impacts of this decision on donors, aid agencies, and policy makers. To this end, we compare two prevalent fundraising modes using optimization models: fundraising with the option of earmarking donations and fundraising without an earmarking option. In the earmarked case, we consider a new fundraising challenge, excessive funds raised for certain disaster relief projects. We find that desirable fundraising modes for donors, aid agencies, and policy makers differ depending on levels of several parameters, including an aid agency’s utility of a dollar raised, the fundraising cost factor, and donors’ unit utility of donations. Allowing for earmarking leads to a lower overall fundraising cost percentage. For emergencies with strong media attention and donor interest, allowing for earmarking of donations is likely to reduce fundraising activities of organizations with low fundraising costs, while it is likely to encourage fundraising activities among organizations with high fundraising costs.