Prague Economic Papers 2013, 22(4):542-557 | DOI: 10.18267/j.pep.467

Certification and Its Impact on Quality of Charities

Katarína Svítková
Anglo-American University, Lázeňská 4, 118 00 Prague, Czech Republic (katarina.svitkova@aauni.edu).

Nonprofit organizations in transition countries experience low trust and consequently low income from donations. The study introduces one particular solution to the problem, certification, and examines its impact on the quality of the nonprofit organizations in the market. The situation is illustrated in a game theoretical model, with a manager, donor, certifier, and the charity providing a charitable good: for simplicity, charity is either good or bad: A good charity spends all the resources on the charitable good, and a bad one diverts all resources to the private consumption of its manager (for-profit in disguise). We show that for a wide parameter range and for two different disclosure rules, the presence of a certifier in the market increases the incentives for managers to choose good charities, leading to an improvement in the market as the share of good charities increases.

Keywords: quality assurance, certification, fundraising, non-profit organizations
JEL classification: D71, D82, L15, L31

Published: January 1, 2013  Show citation

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Svítková, K. (2013). Certification and Its Impact on Quality of Charities. Prague Economic Papers, 22(4), 542-557. doi: 10.18267/j.pep.467
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