MATCHING DONORS AND NONPROFITS THE IMPORTANCE OF SIGNALING IN FUNDING AWARDS

The topic of nonprofit reform has sparked a debate on the battle between efficiency and effectiveness. Why do ineffective nonprofits survive? Prospective donors favor applicants likely to fulfill donor priorities. Donors with limited time and energy look for signals that reveal recipients' true capabilities. Knowing this, recipients attempt to send the right signals to prospective donors. If the process of sending and reading signals is efficient, funding decisions will tend toward an optimal outcome in which only effective agencies survive. What signals do donors consider the most helpful? Are organizations that send such signals receiving the highest payoffs? What is the financial yield of each signal to recipients? This article uses a signaling game to sharpen our understanding of nonprofit fundraising and derive the conditions under which signals will be credible. Interview and survey evidence gathered in Brazil indicate that signals of accessibility, reliability, and credibility attract the highest payoffs.