Straight Cash vs. Matching Gift: a Surprise Winner?

The Theory

To attract more contributions, many donors offer large gifts that are contingent on other donors’ chipping in a specified amount. By using a matching gift, they hope to attract people who would otherwise figure that a charity doesn’t need their help if a major gift is already in hand. But matching gifts don’t always attract as many additional donations as a simple contribution does, according to a paper by two researchers at Texas A&M University.

The Test

Both cash gifts and matching gifts signal a charity’s quality to prospective donors, the researchers posit. When little information is available about a nonprofit — if it is new, for instance — potential donors look to leadership gifts to determine whether a charity is worth their contribution. Researchers have long concluded that matching gifts are more effective. But cash gifts with no strings attached have exceeded matching gifts in recent experiments. In a series of mathematical models, the authors sought to explain why such seed funding is so potent.

Results

The paper suggests that if donors put up money without requiring a match, it implies a stronger endorsement — “a reliable signal,” says Silvana Krasteva, one of the researchers. In contrast, a matching gift is “cheap talk,” she says. The donor may not have to give anything if the matching gifts don’t materialize.

Dig Deeper

The findings need to be investigated in lab settings and field tests. Matching gifts can be effective especially when used by a brand-name entity, because the need to signal its value is less important, says Krasteva. She uses public radio as an example: “We know what NPR does. In that setting, matching is better because it solves the free-rider problem.”

Find It

“Informative Fundraising: The Signaling Value of Seed Money and Matching Gifts” is a working paper by Silvana Krasteva and Piruz Saboury.