Charitable Giving and NPOs Investment Decision in a Stochastic Dynamic Economy

Abstract

We study the dynamic interaction between donors’ contributions and the investment strategies of a non-profit organization (NPO) amid fluctuating donor income and varying financial market conditions. The analysis reveals a consistent pattern in the NPO’s allocation strategy, directing a fixed proportion of its endowment toward higher-risk assets. Notably, increased donor support often correlates with the NPO’s heightened activity in financial markets, which can occasionally reduce the provision of charitable goods. A significant finding is the NPO’s preference for environments with lower returns on risk-free assets. Additionally, the study delineates the contrasting impacts of financial market uncertainties and donor income variations on the decision-making processes of both donors and the NPO; while market volatility significantly shapes strategies for both groups, fluctuations in donor income have minimal impact on their strategic decisions.