The Influence of Information Costs on Donor Decision Making

• DOI: http://doi.org/10.1002/nml.21105
• Author: Lindsey M. McDougle,Femida Handy
• Published date: 01 June 2014
• Date: 01 June 2014

Correspondence to: Lindsey M. McDougle, Northern Illinois University, 231

N.Annie Glidden Rd., DeKalb, IL 60115. lmcdougle@niu.edu.

NONPROFIT MANAGEMENT & LEADERSHIP, vol. 24, no. 4, Summer 2014 © 2014 Wiley Periodicals, Inc 465

Published online in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/nml.21105

The Influence of Information

Costs on Donor Decision

Making

Lindsey M. McDougle,

1

Femida Handy

2

1Northern Illinois University, 2University of Pennsylvania

This article explores whether an individual’s information costs

influence the information-gathering strategies that he or she

turns to prior to donating to a nonprofit. The data for the study

come from a telephone survey of residents in a large county

in southern California (n = 1,002). The sample was selected

using random-digit-dialing technology and a computer-assisted

telephone interviewing system. A series of binomial logit mod-

els revealed that information costs significantly influenced the

information-gathering strategies individuals turned to in order

to learn about nonprofit performance prior to making a dona-

tion. Results also revealed that greater confidence in nonprofits

did not lead individuals to forgo efforts to obtain information

on nonprofit performance altogether. The findings from this

study suggest that it is important for nonprofit administrators

to recognize, and then take into account, that not all individu-

als will rely on the same information sources when seeking to

learn about nonprofit performance.

Keywords: nonprofit management, nonprofit, accountability,

principal–agent

We thank the faculty and staff associated with the Caster Family Center for

Nonprofi t and Philanthropic Research at the University of San Diego for assistance

with survey development and data collection.

466 MCDOUGLE, HANDY

Nonprofit Management & Leadership DOI: 10.1002/nml

THE PUBLIC GENERALLY EXPECTS for nonprofit organizations to

be both efficient and effective in their performance (Handy

et al. 2011; Tinkelman and Donabedian 2007). Nonprofit

performance, however, does not always align with public expec-

tation. In fact, after several well-publicized scandals during the

1980s and 1990s, public calls for greater accountability in the

nonprofit sector led to the emergence of a number of nonprofit

“watchdog organizations,” such as Charity Navigator, the Better

Business Bureau’s Wise Giving Alliance, and the American Institute

on Philanthropy (Chen 2009; Chhaochharia and Ghosh 2008, 2;

Silvergleid 2003, 11). Because most people have limited informa-

tion about how nonprofits operate, these watchdog organizations

were created with the expectation that they would provide both

donors and potential donors with unbiased and easily accessible

accountability information so that they might make better “edu-

cated decisions about where to donate money” (Cnaan, Jones,

Dickin, and Salomon 2011, 381).

In recent years, scholars have begun to examine whether indi-

viduals actually utilize the information provided by these nonprofit

watchdog organizations (for example, Better Business Bureau 2001;

Gordon, Knock, and Neely 2009; Silvergleid 2003); and, for the most

part, these studies have shown that many people tend not to check

the information that nonprofit watchdog organizations provide. In

their study examining whether nonprofit watchdog organizations

truly serve the average donor, for example, Cnaan et al. (2011)

found that an overwhelming majority of donors (nearly 78percent,

in fact) did not consult the websites of nonprofit watchdog agen-

cies prior to making charitable donations. Moreover, in assessing

the effects of nonprofit watchdog organizations on the social capital

market, Silvergleid (2003) found that national accountability rat-

ings of charitable performance were not a significant predictor of

private contributions. Given findings such as these, one may begin

to assume that nonprofit watchdog organizations, and their ratings

of charitable performance, have little to no impact on donor deci-

sion making. However, before such an assumption can be made it is

important to first ask whether some people are more likely to rely

on the information provided by these watchdog organizations (or on

some other information sources) more than others.

Indeed, nonprofit scholars have long hypothesized that the

sources of information that individuals will turn to in order to learn

about nonprofit performance will differ depending on their ability

to reduce information asymmetries (for example, Handy et al. 2011;

Marcuello 1998, 179; Permut 1981; Sloan 2009). For example, it has

been suggested that individuals who are most likely to rely on non-

profit watchdog organizations and other third-party accountability

systems will have lower information costs (that is, the costs associ-

ated with observing and monitoring how a nonprofit is operated)

than those who do not (Sloan 2009). Because individuals with lower