TY - JOUR
T1 - Donors’ Responses to Profit Incentives in the Social Sector
T2 - The Entrepreneurial Orientation Reward and the Profit Penalty
AU - Faulk, Lewis
AU - Pandey, Sheela
AU - Pandey, Sanjay K.
AU - Scott Kennedy, Kristen
N1 - Funding Information:
We are grateful to JPAM's anonymous reviewers and to Matt Potoski for numerous suggestions that have greatly improved this article. We also want to thank Gregg Van Ryzin, Justin Marlowe, Kate Yang, Joe Cordes, Dan Smith, Jurgen Willems, and Thad Calabrese for insightful conversations.
Publisher Copyright:
© 2019 by the Association for Public Policy Analysis and Management
Copyright:
Copyright 2020 Elsevier B.V., All rights reserved.
PY - 2020/1/1
Y1 - 2020/1/1
N2 - This study uses an online survey experiment to test whether the pairing of profit-seeking with mission-related programs in the social sector attracts or deters donations from individual donors. We test individuals’ response to three types of profit incentives allowed under current U.S. public policy: (1) non-distributed profit to an organization, which is allowed for nonprofit entities; (2) profit to the organization's equity investors and owners, which is allowed under for-profit social enterprise governance charters; and (3) profit to lending investors, which is introduced by social impact bonds, a pay-for-success policy tool. We test trust theory, under which profit incentives deter donors against entrepreneurial orientation (EO) theory, which suggests that donors are attracted to organizations that use innovative, market-driven programs. Findings indicate support for both theories, but the support depends on how the specific profit incentive is structured. Donors support organizations that use profit-generating social enterprise programs—but only when the profits are non-distributable; donors’ support is significantly lower for social enterprises in which owners and equity investors may profit. Importantly however, this negative effect is not found for pay-for-success policy tools where lending investors, rather than equity investors and owners, receive profits.
AB - This study uses an online survey experiment to test whether the pairing of profit-seeking with mission-related programs in the social sector attracts or deters donations from individual donors. We test individuals’ response to three types of profit incentives allowed under current U.S. public policy: (1) non-distributed profit to an organization, which is allowed for nonprofit entities; (2) profit to the organization's equity investors and owners, which is allowed under for-profit social enterprise governance charters; and (3) profit to lending investors, which is introduced by social impact bonds, a pay-for-success policy tool. We test trust theory, under which profit incentives deter donors against entrepreneurial orientation (EO) theory, which suggests that donors are attracted to organizations that use innovative, market-driven programs. Findings indicate support for both theories, but the support depends on how the specific profit incentive is structured. Donors support organizations that use profit-generating social enterprise programs—but only when the profits are non-distributable; donors’ support is significantly lower for social enterprises in which owners and equity investors may profit. Importantly however, this negative effect is not found for pay-for-success policy tools where lending investors, rather than equity investors and owners, receive profits.
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U2 - 10.1002/pam.22179
DO - 10.1002/pam.22179
M3 - Article
AN - SCOPUS:85075131482
VL - 39
SP - 218
EP - 242
JO - Journal of Policy Analysis and Management
JF - Journal of Policy Analysis and Management
SN - 0276-8739
IS - 1
ER -