Donors’ Responses to Profit Incentives in the Social Sector: The Entrepreneurial Orientation Reward and the Profit Penalty

Lewis Faulk, Sheela Pandey, Sanjay K. Pandey, Kristen Scott Kennedy

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)218-242
Number of pages25
JournalJournal of Policy Analysis and Management
Volume39
Issue number1
DOIs
StatePublished - Jan 1 2020

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting(all)
  • Sociology and Political Science
  • Public Administration

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