Incentivizing Regulatory Participation: Effectiveness of a Fundraising Levy

Abstract

In the absence of a statutory instrument to enforce payment of a regulatory fee, regulators are reliant on a combination of ‘carrots’ and ‘sticks’ to encourage financial contribution by the bodies they oversee. In contrast to extant studies of public funding of nonprofits, we empirically evaluate the effectiveness of a government policy to rely on nonprofit funding of statutory regulation. We exploit a sharp discontinuity in the eligibility threshold for charities contributing to a new Fundraising Regulator in England & Wales in order to estimate a causal effect of the levy on participation. We show that the regulator’s threat to ‘name and shame’ was very effective in incentivizing regulatory participation and generating income, but raise some concerns about the long-term viability of this approach. The results are significant at a time when many jurisdictions are considering how best to fund the regulation of nonprofits.