Charitable Organizations' Cost Disclosure Mitigates Overhead Aversion

Abstract

Charities face common problems in which donors tend to avoid charities with high overhead rates. This overhead aversion phenomenon forces charities to suppress their overhead spending, which impedes them from performing as best as they can. Substantial research has attempted to mitigate overhead aversion by eliminating the need to cover overhead expenses by donors. The present work takes a different approach and presents a method to reduce overhead aversion and to improve the attitude toward the charity by providing donors with details of the overhead costs. Study 1 demonstrates that disclosing the overhead cost improves donors' attitude toward the charity. Moreover, the effect is mediated by the donor's attitude toward the overhead. Study 2 shows that presenting cost information is more effective than the methods proposed by the existing literature (e.g., presenting a message that addresses the importance of overhead). The research contributes to the literature by demonstrating how to communicate with donors to increase their evaluations of the charity.