Compliance Spending Aversion: An Unintended Consequence of Charity Regulation

Abstract

Charities are increasingly required to spend more resources on administrative tasks to comply with regulations. Given previous findings on donors’ overhead aversion, namely that donors avoid giving to charities with a high ratio of overhead relative to program spending, we investigate whether donors also penalize charities that spend high shares of donations on administrative compliance tasks, despite these tasks being outside the charities’ control. The results of an incentivized online experiment with a nationally representative sample from Ireland (n=1,032) suggest that donors are averse to compliance spending and that this aversion is almost as strong as the aversion to other types of overhead. Our findings indicate that well-intended regulations may have the unintended consequence of reducing charitable giving. They also suggest that reducing administrative burden for charities might increase donations. Quantifying how much charities spend on administrative compliance tasks may provide useful insights to inform decisions about the optimal level and process of charity regulation.