Incentivizing Regulatory Participation: Effectiveness of a Fundraising Levy

• Published date: 01 May 2021
• Author: Alasdair C. Rutherford,Diarmuid McDonnell,Eddy Hogg
• Date: 01 May 2021
• DOI: http://doi.org/10.1111/puar.13176

Research Article

532 Public Administration Review • May | June 202 1

Abstract: In the absence of a statutory instrument to enforce payment of a regulatory fee, regulators must rely on a

combination of “carrots” and “sticks” to encourage financial contributions by the organizations they oversee. In contrast

to studies of public funding of nonprofits, this article empirically evaluates the effectiveness of a government policy to rely

on nonprofit funding of statutory regulation. The authors exploit a sharp discontinuity in the eligibility threshold for

charities contributing to the new Fundraising Regulator in England and Wales to estimate a causal effect of the levy on

participation. The article shows that the regulator’s threat to “name and shame” was effective at incentivizing regulatory

participation and generating income, but it raises some concerns about the long-term viability of this approach. The

results are significant at a time when many jurisdictions are considering how best to fund the regulation of nonprofits.

Evidence for Practice

• This research examines the effectiveness of a “name-and-shame” strategy pursued by a charity regulator to

encourage organizations to contribute to the cost of their regulation.

• Fundraising charities place high value on their reputations, and the threat of being named and shamed by

the Fundraising Regulator for not paying the fundraising levy was one that charities took seriously.

• The way the Fundraising Regulator implemented the levy—by sending invoices to eligible charities, thereby

playing down the “voluntary” nature of the levy—was necessary to get charities to join. This was especially

the case for medium-sized organizations.

• Cost was not a significant barrier to membership in the Fundraising Regulator for most charities, and so

charities do not seem to be very price sensitive. However, this also means that altering the levy fee bands may

not result in significantly higher or lower numbers of paying organizations.

• The estimated income for the Fundraising Regulator attributable to the name-and-shame approach was

significant (approximately £900,000 per annum), and without this, it is likely that the level of resources available

for fundraising regulation, particular for a new and unproven fundraising regulator, would be significantly lower.

Alasdair C. Rutherford

University of Stirling

Incentivizing Regulatory Participation: Effectiveness of a

Fundraising Levy

An important role for regulators across the

world is to increase the trust of consumers

and/or the public in the sector that is being

regulated (Keating and Thrandardottir 2017). In

many sectors, the violation of regulations by a few

can have a negative externality, affecting trust even in

other organizations that conform with the regulation

(Kilpatrick and Lapsley 1996). But regulators can also

take actions that may undermine broader trust in their

sector, particularly when they highlight bad practice.

This is a tension in accountability: good transparency

can incentivize compliance with regulatory

requirements, but it also risks undermining trust in a

sector if it shows violations to be widespread.

A thorny issue in the establishment of many regulators

is how they are to be funded. Regulators that are

dependent on registration fees from the organizations

they regulate may use a combination of “carrots”

and “sticks” to gain sufficient participation, both to

achieve legitimacy as well as to be financially viable.

The carrots are often fairly clear: a potential gain in

reputation from demonstrating conformity with the

regulatory requirements, perhaps by being listed in

a register with an accompanying mark of approval

(May 2005). In terms of sticks, traditionally regulators

would adopt a “command and control” approach

to compel participation; for example, in the field

of environmental governance, regulators would

command firms to reduce emissions and control how

they did so (e.g., by specifying technologies) (Prakash

and Potoski 2012). In the absence of statutory

powers, regulators often rely on information-based

approaches such as implementing voluntary disclosure

regimes and threatening further statutory regulation

if there is noncompliance (Busuioc and Lodge 2017;

Prakash and Gugerty 2010). Another option is for the

Eddy Hogg is a lecturer in social policy

at the University of Kent. His research looks

at volunteering, charitable giving, and

public attitudes toward the voluntary sector.

Recently, he has worked on volunteering

in public services, youth volunteering,

charitable giving and volunteering in

schools, the value of charity involvement

in supporting young people, fundraising

regulation, and public attitudes toward

charity regulation in England and Wales.

E-mail: e.hogg@kent.ac.uk

Diarmuid McDonnell is a research

fellow in the Third Sector Research Centre,

University of Birmingham. His research

explores the interrelated topics of charity

risk, regulation, and accountability using

linked administrative data derived from

charity regulators internationally. He

has methodological interests in the use

of administrative data for social science

research, data science, and policy evaluation

methods.

E-mail: d.mcdonnell.1@bham.ac.uk

Alasdair Rutherford is professor of

social statistics in the faculty of Social

Sciences at the University of Stirling. His

work uses large administrative data sets

and secondary social survey data to address

research questions pertaining to charity risk,

regulation, and finance in charities across

countries and jurisdictions. An economist by

training, he is also interested in developing

the capacity of both regulators and charities

to make use of the administrative data they

generate.

E-mail: alasdair.rutherford@stir.ac.uk

Public Administration Review,

Vol. 81, Iss. 3, pp. 532–542. © 2020 by

The American Society for Public Administration.

DOI: 10.1111/puar.13176.

Diarmuid McDonnell

Eddy Hogg

University of Birmingham

University of Kent