Association for Public Policy Analysis & Management

Nonprofit organizations are expected to provide services that are left vacant by the government and the market, so the density of nonprofits in a neighborhood matters. According to the National Center for Charitable Statistics (NCCS), there are approximately 1.5 million nonprofit organizations (NPOs) registered with the Internal Revenue of Service across the United States. However, our preliminary analysis shows that NPOs tend to cluster in certain communities rather than evenly distribute across the United States. Why do certain communities have more NPOs than others? Specifically, what neighborhood characteristics predict the size and types of NPOs?

In this study, we test demand-side theory and supply-side theory to examine factors that influence the density of NPOs, with a particular focus on community characteristics, as represented by community needs and resources available in communities, respectively. As a demand-side theory, government failure theory purports that nonprofit density is a result of diversity of communities and characterizes the nonprofit organization as a philanthropist who seeks resources to provide services not only to address community need, but also to substitute government activities. Accordingly, the theory predicts that the demand for NPOs will increase as a community’s needs increase (e.g., high poverty rate, crime rate, or unemployment rate) because the capacity of government is limited in dealing with the various interests of different groups of people. As the supply-side theory, however, ecological models explain environmental influence on organization’ decisions, with a focus on pre-existing organizational density because the resources nonprofits can garner is closely related to the “carrying capacity” of the service field. Therefore, the theory predicts that nonprofits will be more active in resource-munificent communities, such as those with a high level of government funding or the presence of potential corporative and individual donors.

Using regression analysis, our study will test the relationship of nonprofit density with community characteristics, types of nonprofit organizations, and available resources. We utilize the NCCS 2014 Core Files to gather information on nonprofits, including location, organization type, activity category, revenue composition, among others. The American Community Survey 2012-2016 is the primary data source for two sets of variables capturing government failure and ecological view, such as the composition of race or ethnicity, the share of foreign-born population, poverty rate, unemployment rate, age, household median income, crime per capita, government size, and the existence of similar organizations. We expect the study to shed light on the competing theories regarding whether nonprofits respond to community needs or to resource availability.