We build a simple occupational choice model of the non-profi…t sector and private warm-glow donations. Lack of monitoring on the use of funds in the non-profi…t sectors implies that factors that increase private donations to the non-profi…t sector (e.g., higher private income, stronger preference for giving, or infl‡ows of foreign aid) may worsen the motivational composition and performance of the non-profi…t sector. We also show that when pro-social motivation affects the propensity to donate out of private income, there may exist multiple equilibria with very different motivational compositions of the non-profi…t sector. Highly motivated agents in the private sector attract self-interested agents to the non-profi…t, while a private sector with low levels of motivation makes the non-profi…t sector appealing only to pro-socially motivated agents.
Linking donations to the motivational composition of the non-profi…t sector or tax-…financed public funding of non-profi…ts can eliminate the bad equilibrium.