Charity Watchdogs and the Limits of Information-Based Regulation |
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Authors: | Rebecca Szper Aseem Prakash |
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Institution: | (1) School of Information, University of Washington, Mary Gates Hall, Box 352840, Seattle, WA 98195, USA;(2) Department of Political Science, University of Washington, Gowen Hall 39, Box 353530, Seattle, WA 98195, USA |
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Abstract: | Transparency concerns and the concomitant accountability challenges have motivated policy and legal scholars to explore information-based
regulatory approaches. We examine their usefulness in the context of the nonprofit sector which tends to show signs of governance
failure. Although nonprofits are required by law to disclose information on fund use, nonprofit donors face difficulties in
accessing and interpreting information about how nonprofits are deploying resources. Charity watchdogs make this information
available to donors in a convenient format. In theory, this should allow donors to reward nonprofits that devote resources
to service delivery and to punish those that are less careful about controlling overheads. To test the relationship between
charity ratings and donations, we examine 90 nonprofits in the state of Washington for the period 2004–2007. Drawing on ratings
data provided by Charity Navigator, we find that changes in charity ratings tend not to affect donor support to these nonprofits. We explore this statistical finding via interviews with 10 charities located
in Washington State. Supporting the statistical results, we find that charities believe that donors tend not to systematically
embed ratings in their donation decisions. Instead, they believe that donors assess nonprofits’ effectiveness and trustworthiness
via other means such as familiarity, word-of-mouth, or the visibility of the nonprofit in their community. In sum, the policy
challenge is to provide information which users desire such as organizational effectiveness as opposed to basic fund allocation
in the case of non-profits. What matters for policy efficacy is not how much information is provided but of what type. |
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