Economies of Scale for Charitable Organizations?
Theory and Evidence

Pamela M. Schmitt
United States Naval Academy
Department of Economics

Kurtis J. Swope
United States Naval Academy
Department of Economics

Abstract

This paper examines the administrative and fundraising costs of public-serving nonprofit organizations to determine if there are economies of scale for charitable organizations. We analyze a panel dataset of the financial reports of 134 charities using random effects generalized least squares. The data indicate that significant scale economies exist for both administration and fundraising. That is, the size of an organization is an important determinant of administration and fundraising expenses relative to program service expenses and total revenue, respectively. Contrary to popular belief, age appears to increase an organization’s administrative costs, but has no significant impact on fundraising costs. The results are robust across organization types.