If Someone Else Pays for Overhead, Do Donors Still Care?

Abstract

To better evaluate the effectiveness of overhead-free donations on giving behavior, we seek to further investigate the robustness of the findings from Gneezy et al. using a nonstudent population. In an online experiment, we test whether (a) the level of overhead costs affects giving decisions and whether (b) overhead aversion disappears once donors are informed that an anonymous donor has already covered all overhead costs. Results show that donations decrease as overhead spending increases when donors have to pay for overhead. However, unlike the original article, we find mixed results when someone else covered overhead costs. Participants exposed to a nonprofit with a 33% overhead ratio where overhead was already covered still displayed overhead aversion. However, this aversion disappeared at a high overhead ratio of 67%. The overall results remain unchanged after controlling for demographics. Our results hold important implications for nonprofit organizations who must find a careful balance between appealing to donors for short-term financial gain and addressing the need to alter skewed donor expectations toward financial efficiency in the long run.