The crowding-out of private donations by government grants is an integral element in designing an efficient method of financing nonprofit activity. This paper looks at elements of crowd-out, both the direct impact on donors and the indirect impact due to the response of nonprofits. We include both a theoretical and empirical analysis of the reactions by donors and nonprofits to an increase in government funding based on data from the League of American Orchestras’ annual reports from 2004-2007. To combat indirect crowd-out, renewed emphasis should be placed on grant design; for direct crowd-out, theories of collective action are appropriate.
Hughes, Patricia A.; Luksetich, William A.; and Rooney, Patrick, "Crowding –Out and Fundraising Efforts: The impact of government grants on Symphony Orchestras" (2012). Economics Faculty Working Papers. 24.