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.