RIVAL CHARITIES

The paper develops a model in which a number of charities (or other no nprofit firms) provide various bundles of public goods or services thr ough private donations. The motivation for individuals to found and op erate such firms is that it allows them to influence the mix of public goods. It is their decisions regarding the allocation of donations ac ross uses that matter in the end. Donors to these firms take into acco unt the allocation decisions that will be made by the organizations to which they contribute. We find a propensity for such organizations to specialize in the provision of services, and further find that divers ification by such firms diminishes the equilibrium level of contributi ons they will collect. We demonstrate the possibility that a commitmen t by a monopoly charity to an allocation rule that is, ex-post, privat ely sub-optimal can eliminate this effect, and may therefore be advant ageous, ex-ante. The allocation rule which accomplishes this involves honouring donor designations of their contributions to specific uses. This is a policy that is frequently adopted by local chapters of the U nited Way. (C) 1997 Elsevier Science S.A.