Three Essays on the Economics of the Nonprofit Sector

In this dissertation, I study the economics of the nonprofit sector. In particular, I focus on individuals’ motives to contribute to the nonprofit sector either through charitable giving or employment within the sector. In the first chapter, I ask: how do state lotteries designed to fund education impact overall funding available for education? I find that -- while state government net expenditures on education do not significantly increase -- charitable donations to education fall. This results in a decrease in funding available for education. The large degree of charitable crowd-out observed here (relative to other papers in the literature) seems to be driven by how aware donors are of the purported beneficiary of the lottery. Evidence on whether nonprofit workers earn less than for-profit workers is mixed. In the second chapter, I attempt to reconcile mixed results by considering whether we should always expect to see wage gaps even when there are workers who are willing to work for less because they are motivated by the mission of the nonprofit. I argue that we should only expect wage gaps when labor demand of the nonprofit sector of an industry is low. When labor demand is high, there are not enough “motivated” workers to fulfill demand and so nonprofits must raise wages. I find empirical evidence consistent with these predictions. Penalties for working in a nonprofit are largest in areas where nonprofits require a small share of the labor force. In these same locations, the quality of work being done and worker job satisfaction are substantially higher than for-profits. In the third chapter, Sera Linardi and I ask: how does visibility impact prosocial behavior? We propose that some individuals have “wallflower” preferences and prefer to avoid standing out in a negative way (giving much less than average) or a positive way (giving much more than average). Wallflowers, therefore, move towards what they expect the average individual would choose. As a result visibility may only increase giving when donors expect others’ giving to be high. We conduct a laboratory experiment that supports this prediction. “Wallflower” behavior is particularly prominent amongst women