Politická ekonomie
Politická ekonomie
Prague Economic Papers
University of Economics, Prague

Prague Economic Papers Vol. 22 No. 4

Certification and Its Impact on Quality of Charities

DOI: https://doi.org/10.18267/j.pep.467

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Katarína Svítková

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: certification, fundraising, non-profit organizations, quality assurance

JEL Classification: D71, D82, L15, L31