The Effects of Information Transparency in Nonprofit Settings

Cheryl Litman

Advisor: Thomas Stratmann, PhD, Department of Economics

Committee Members: Daniel E Houser, Mark Koyama

Vernon Smith Hall (formerly Metropolitan Building), #5075
November 08, 2019, 10:00 AM to 12:00 PM


In 1931, Justice Louis Brandeis is quoted in  Harper's Weekly saying “Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.”  At that time the word "publicity" referred both to something like what we think of as "public relations" as well as to the practice of making information widely available to the public, what we call transparency.  This dissertation investigates transparency as a method of regulation in nonprofit settings and sheds light on the effectiveness of such transparency on individual behavior.

Chapter 1 contains an analysis of two different aspects of nonprofit behaviors.  First, I examine the literature on the impact of ratings on donors’ contributions. Second, I perform an original analysis of the annual changes in the rating of charities by Charity Navigator, a third party information intermediary.  Donors do not systematically respond to the rise and fall of ratings, except in the case of the smallest and youngest charities.   Charities don’t systematically improve their rating over time.

Chapter 2 expands on the analysis of nonprofits by examining the charities impact by the Madoff fraud event in 2008.  I obtained the tax returns for all charities for the impacted years and determined whether they reported the material loss.  I also   perform a review of the media coverage and identify changes in donor behavior in response to coverage.   Charity ratings and media coverage provide information to donors in different ways with differing results.  For transparency to be effective in regulating a charity, the information needs to be available at very low cost to everyone and it, the charity,  has to have a belief that negative information will result in a negative impact on the charity.  

In Chapter 3 I examine the behavior of figure skating judges. Figure skating marks are transparent to the public with marks identified by judge.  I provide evidence from natural data to examine variations in affiliation bias. Using data from figure skating, I test whether judges are biased by affiliating with the same club as skaters, and under which conditions this bias may increase or decrease. I find that belonging to the same skating club correlates with higher marks. This finding is robust to a number of alternative specifications. Further, judges assign both positive and negative strategic markings in program segments with more than one favored skater. We find that under higher visibility of skating performance and judging marks, the bias goes to zero. In addition, I find more bias when marking guidelines are flexible. Finally, I  find that judges show greater favoritism when judging teams, which is consistent with the salience associated with a team sport.