DP11931 | Samaritan Bundles: Inefficient Clustering in NGO Projects

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We build a model with non-governmental organizations competing through fundraising for donations and choosing their project types. Donors’ willingness to give differs across project types. Each NGO chooses whether to compete in the larger donation market or to monopolize the smaller one. The resulting equilibrium configuration crucially depends on the asymmetry in potential donation market size and on donors’ perceived substitutability or complementarity between giving to two different projects. We analyze the welfare properties of the decentralized equilibrum and characterize the conditions under which such equilibrium is inefficient. We also develop a variant of the model with inter-temporal choices of NGOs, analyze settings where NGOs can coordinate their fundraising activities and/or project type choices, extend the model to allow for spillovers between NGO fundraising activities, and illustrate the mechanisms of the model with several case studies.