UC San Diego behavioral economist Uri Gneezy understands why people don't like giving to charities when they know a large chunk of their donation will go toward overhead.
"I want to help a kid's education, or cancer research — whatever it is that I'm giving money to," Gneezy said. "I don't want to pay for the CEO's salary."
This presents a problem for charities. Recruiting and compensating talented employees, paying for fundraising efforts, keeping the office lights on — overhead doesn't pay for itself.
But there may be a workaround. When Gneezy and his colleagues gave prospective donors a way to bypass overhead costs, giving increased dramatically.
Gneezy's results, published today in the journal Science, come from a real-world experiment. Working with an undisclosed educational charity, the researchers sent out fundraising letters to 40,000 people.
Some people got letters simply asking for money. Some were told their contribution would build on $10,000 in seed funding. Others were told their donation would be matched, dollar for dollar, up to $10,000.
But one group received letters outlining a special arrangement.
"We said, 'We got $10,000, and this money will be used to cover overhead. So every dollar you give will go directly to the program,'" Gneezy said.
More people gave, and they gave more, when overhead had already been covered — a lot more.
The dollar-matching letters brought in a grand total of $12,210, compared with the overhead-free letters, which brought in $23,120. In each case, the charity began with $10,000. By simply distributing it differently, giving nearly doubled.
Gneezy said charities hoping to raise more money from individual donors should try convincing wealthy philanthropists to first cover their overhead. Then they could advertise donations to their charity as overhead-free.
But if no one likes paying for overhead, how will charities persuade rich donors to pay only for overhead? Here's how Gneezy would pitch them:
"If I could sit with someone who wants to give $5 million, I could tell them, 'Look. Give this $5 million to cover overhead and then you'll get a multiplier.' I hope we'll be able to convince some big donors about that."
