An Internet-Enabled Donor-to-Nonprofit (D2N) Marketplace
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Transcript of An Internet-Enabled Donor-to-Nonprofit (D2N) Marketplace
An Internet-Enabled Donor-to-Nonprofit (D2N)
Marketplace
Prabuddha De
Purdue University
Kemal Altinkemer
Purdue University
Zafer OzdemirMiami
University
Yasin OzcelikFairfield
UniversityPurdue University, West Lafayette, IN
Oct. 5, 2007
The nonprofit sector• Close to 2 million nonprofits• U.S. households give over two
percent of income to charities on average.
• Accumulated assets of $1 trillion• Annual donations of about $300
billion
Fundraising the old-fashioned way
Fundraising and the Internet• Shift in giving patterns• Timely response to emergencies• Cost of campaigns
The new way
Online services for donors and nonprofits• Online database to search for
nonprofits– GuideStar: www.guidestar.org
• Online evaluation, accreditation, and seal programs– Charity Navigator: www.charitynavigator.org
– The American Institute of Philanthropy (AIP): www.charitywatch.org
– The Best Business Bureau’s (BBB) Wise Giving Alliance: www.give.org
Our focus• Donor-to-Nonprofit (D2N) marketplace• Issues of interest:
– Pricing of database and certification services
– Accessibility/awareness of the database service
– Accuracy of the certification process– The effect of online services on
• total fundraising revenues• fundraising effectiveness
Related literature• No study on nonprofits in top IS
journals• Methodologically:
Our analytical model
• Variety in organizational missions
• Fundraising activities
• Variety in organizational effectiveness
• Donors’ search for charities
Horizontal differentiation (linear city market)
Hotelling (1929)
AdvertisingGrossman and Shapiro (1984)
SignalingSpence (1979)
SearchWolinsky (1984)
A game theoretic model of fundraising
• Spatial linear city market with 2 nonprofits at both ends.
• “Potential” donors uniformly distributed along the periphery of the market.
• Potential donors’ willingness-to-give to a nonprofit depends on:
– awareness– mission fit– expected quality– donor’s own type (private information)
A game theoretic model of fundraising (continued)
• Nonprofits’ qualities are not known a priori.• Potential donors may give only to those
nonprofits they are aware of. – They may be contacted by one or both nonprofits.– They may search themselves (offline or online).
• Nonprofits incur costs to contact potential donors.
• Potential donors incur a cost each time they sample a nonprofit.
• Nonprofits maximize their net fundraising revenue (following the literature on revealed objectives of nonprofits).
Basic structure of the market
High willingness-to-give
Low willingness-to-give
1-
Expected quality same for both nonprofits in the benchmark case
?
Wait and hope to be contacted…
What’s a potential donor to do?
?
N1 N2
The extensive form of the game(benchmark case)
1. Nonprofits decide on their optimal fundraising reach (r1 and r2) and contact potential donors randomly.
2. Potential donors decide whether to search for a nonprofit depending on their type and whether they have been contacted.
3. Each donor decides where and how much to donate based on his/her type, awareness of the nonprofits in the market, and belief about their quality.
The market after solicitations are complete (benchmark case)N1
r1
N2
r2
r1r2
r1 (1-r2)
r2 (1-r1)
(1-r1) (1-r2)
(1-)r1r2
(1-)r1 (1-r2)
(1-)r2 (1-r1)
(1-)(1-r1) (1-r2)
Fully aware
Fully aware
Aware of N1 only
Aware of N2 only
Unaware
Aware of N1 only
Aware of N2 only
Unaware
The market after solicitations are complete (benchmark case)N1
r1
N2
r2
r1r2
r1 (1-r2)
r2 (1-r1)
(1-r1) (1-r2)
(1-)r1r2
(1-)r1 (1-r2)
(1-)r2 (1-r1)
(1-)(1-r1) (1-r2)
Fully aware – no search
Fully aware – no search
Aware of N1 only – Search for N2
Aware of N2 only – no search
Unaware – search (twice if necessary)
Aware of N1 only – no search
Aware of N2 only – no search
Unaware – no search
Aware of N2 only – Search for N1
Aware of N1 only – no search
The market after donations are complete (benchmark case)N1
r1
N2
r2
r1r2
r1 (1-r2)
r2 (1-r1)
(1-r1) (1-r2)
(1-)r1r2
(1-)r1 (1-r2)
(1-)r2 (1-r1)
(1-)(1-r1) (1-r2)Do not donate
Donate to N1 Donate to N2
Donate to N1 Donate to N2
Donate to N1 Donate to N2
Donate to N1
Donate to N1
Donate to N2
Donate to N2Do not donate
Do not donate
Do not donate
Search once – Donate to N1 Search twice – N2Search twice – N1 Search once – Donate to N2
The benchmark case result
Fundraising revenues (total and net) increase with the expected quality of nonprofits and decrease with search and contact costs.
The D2N marketplaceProvides two services:• Database – for a fee, allows
potential donors to search online and observe the contact information and mission of both nonprofits. Only a fraction () of the donor population can use the service.
• Certification – for a fee, allows nonprofits to certify their quality. Not perfectly accurate.
Maximizes the usage of its services.
The extensive form of the game with the D2N marketplace
1. The D2N marketplace decides on which services to offer and announces its price(s) for its chosen service(s).
2. Nonprofits observe their own qualities and decide whether to apply for quality certification, the results of which are made available to both nonprofits. Nonprofits decide on their optimal fundraising reach (r1 and r2) and contact potential donors randomly (with or without the certification).
3. Potential donors update their beliefs about the quality of contacting nonprofits based on the available certification (or lack thereof).
The extensive form of the game with the D2N marketplace (continued)4. Potential donors decide whether to
search for a nonprofit depending on their type and whether they have been contacted. Potential donors may either do a traditional (offline) search or subscribe to the marketplace’s database and search there. In both cases donors learn the certification status of the nonprofit(s) they find.
5. Each donor decides where and how much to donate based on his/her type, awareness of the nonprofits in the market, and belief about their quality.
Solve for perfect Bayesian equilibria (PBE).
The market after donations are complete (with the D2N marketplace)N1
r1
N2
r2
(1-)’r1r2
(1-)’r1 (1-r2)
(1-)’r2 (1-r1)
(1-)’(1-r1) (1-r2)
(1-)(1-’)r1r2
(1-)(1-’)r1 (1-r2)
(1-)(1-’)r2 (1-r1)
(1-)(1-’)(1-r1) (1-r2)
Do not donate
Donate to N1 Donate to N2
Donate to N1 Donate to N2
Donate to N1 Donate to N2
Donate to N1
Donate to N1
Donate to N2
Donate to N2Do not donate
Do not donate
Do not donate
The segment without access to the database
Search once – Donate to N1 Search twice – N2Search twice – N1 Search once – Donate to N2
The market after donations are complete (with the D2N marketplace)N1
r1
N2
r2
’’r1r2
’’r1 (1-r2)
’’r2 (1-r1)
’’(1-r1) (1-r2)
(1-’’)r1r2
(1-’’)r1 (1-r2)
(1-’’)r2 (1-r1)
(1-’’)(1-r1) (1-r2)Do not donate
Donate to N1 Donate to N2
Donate to N1 Donate to N2
Donate to N1 Donate to N2
Donate to N1
Donate to N1
Donate to N2
Donate to N2Do not donate
Do not donate
Do not donate
The segment with access to the database
Donate to N1 Donate to N2
Donate to N1
Donate to N1
Donate to N2
Donate to N2
Price of database and optimal fundraising reach
Lemma: A service-maximizing D2N marketplace offers its database to the public free of charge.
Proposition 1. The optimal fundraising reach increases with an organization’s expected quality level. The optimal fundraising reach increases further when the competing organization is certified.
Characterizing the PBEGiven appropriate pricing, expected increase
in net fundraising revenues due to applying for a certification should be
• positive for a high quality nonprofit and negative for a low quality nonprofit in a separating equilibrium.
• positive for both types of nonprofits in a pooling equilibrium.
• neither of the above in a hybrid equilibrium.Potential donors’ beliefs on qualities are set
in accordance with equilibrium behaviors of different types of nonprofits.
The perfect Bayesian equilibria of the game
Proposition 2. There are three types of PBE.
a. Separating equilibrium: only high quality nonprofits get certified.
b. Pooling equilibrium: both types of nonprofits apply for certification.
c. Hybrid equilibrium: high quality nonprofits always apply for certification; low quality nonprofits apply with some positive probability (less than one).
Parametric regions for the equilibria
Cost of certification (c)
Acc
urac
y of
cer
tific
atio
n ( μ
)
Low High
Low
Hig
hSeparating
Equilibrium
Pooling Equilibrium
Hybrid Equilibrium
(a)
Parametric regions for the equilibria
Accessibility of database ( )
Acc
urac
y of
cer
tific
atio
n ( μ
)
Low High
Low
Hig
hSeparating Equilibrium
Pooling Equilibrium
Hybrid Equilibrium
(b)
Total net fundraising revenueProposition 3. If the cost of
certification is sufficiently high, the total net fundraising revenue in the market may drop after the emergence of the D2N marketplace, despite the comprehensive and free database service.
Comparisons of total fundraising revenues
Accessibility of database ( )
Fund
rais
ing
reve
nue
Low High
Net (benchmark)
Total (benchmark)
Net (with D2N – c high)
Total (with D2N)
Net (with D2N – c intermediate)
(a) Accessibility of database ( )
Fund
rais
ing
reve
nue
Low High
Net (benchmark)
Total (benchmark)
Net (with D2N – c high)
Total (with D2N)
Net (with D2N – c zero)
(b)
Separating equilibrium Pooling equilibrium
Comparisons of fundraising effectiveness
Accessibility of database ( )Low High
Benchmark
With D2N – c intermediate
With D2N – c high
(a)
Fund
rais
ing
effe
ctiv
enes
s
Accessibility of database ( )Low High
Benchmark
With D2N – c zero
With D2N – c intermediate
(b)
Fund
rais
ing
effe
ctiv
enes
s
Separating equilibrium Pooling equilibrium
Accuracy of certification
Proposition 4. A service-maximizing D2N marketplace prefers a less costly and less accurate certification process over a more costly and more accurate one.
Implications• Charging the lowest database subscription
fee helps nonprofits increase their fundraising effectiveness.
• To be able to certify more nonprofits, D2N marketplaces should seek to reduce certification costs.
• A reduction in the accuracy of the certification service (due to lowering its cost) is fine for D2N marketplaces.
• The reduction in certification cost helps nonprofits increase net fundraising revenues (which will be used to support their own services).
A quote on the rating services of Charity Navigator, the AIP, and the BBB
“It is irresponsible not to educate donors on the many aspects of [nonprofit] effectiveness beyond the financials.”
Lowell, Trelstad, and MeehanStanford Social Innovation
Review, 2005
Potential future research directions• Oligopolistic competition among
D2N marketplaces• Optimal design of certification
criteria
Questions
???
Thank you!!!
☺