Brian D. Galle

Nonprofit Executive Pay as an Agency Problem: Evidence from U.S. Colleges and Universities

We analyze the determinants of the compensation of private college and university presidents from 1999 through 2007. We find that the fraction of institutional revenue derived from current donations is negatively associated with compensation and that presidents of religiously-affiliated institutions receive lower levels of compensation. Looking at the determinants of contributions, we find a negative association between presidential pay and subsequent donations. We interpret these results as consistent with the hypotheses that donors to nonprofits are sensitive to executive pay and that stakeholder outrage plays a role in constraining that pay. We discuss the implications of these findings for the regulation of nonprofits and for our broader understanding of the pay-setting process at for-profit as well as nonprofit organizations.

The Role of Charity in a Federal System

This Article critiques the prevailing justification for subsidies for the charitable sector, and suggests a new alternative. According to contemporary accounts, charity corrects the failure of the private market to provide public goods, and further corrects the failure of government to provide goods other than those demanded by the median voter.However, the claim that government can meet the needs only of a single “median voter” neglects both federalism and public choice theory. Citizens dissatisfied with the services of one government can move to or even create another. Alternatively, they may use the threat of exit to lobby for local change. Subsidies for charity inefficiently distort the operation of these markets for legal rules.Nonetheless, there remains a strong case for subsidizing charity, albeit on grounds new to the literature. Charity serves as gap-filler when federalism mechanisms break down. For example, frictions on exit produce too little jurisdictional competition, and excessively easy exit produces too much competition - a race to the bottom. At the same time, competition from government constrains inefficient charities. Thus, charity and government each perform best as complements to the other.Finally, this Article sketches the normative legal consequences of these claims. Most significantly, I respond to the claims by Malani and Posner that for-profit charity would be superior to current arrangements. That suggestion would fatally weaken competition between charity and government, defeating the only persuasive purpose for charitable subsidies.

How Do Nonprofit Firms Respond to Tax Policy

We investigate the effects of variations in the value of the charitable contribution deduction on nonprofit firm behavior, including exploring for the first time the effects of the tax price of giving on fund-raising. We find that a 1 percent increase in tax subsidies is correlated with a 2.0 percent increase in fund-raising, while the elasticity of real charitable output to changes in tax price is less than one in absolute value for most firms. We derive a new equation for treasury efficiency in the presence of fund-raising and find that while our point estimates still support treasury efficiency, our confidence intervals are wide enough to allow some possibility that the deduction is not cost effective. Further, the modest elasticity of charitable output to tax price implies that tax subsidies can crowd out other revenue sources, such that the efficacy of the subsidy depends on the relative efficiency of these alternative sources.

Does Federal Spending 'Coerce' States? Evidence from State Budgets

According to a recent plurality of the U.S. Supreme Court, the danger that federal taxes will “crowd out” state revenues justifies aggressive judicial limits on the conditions attached to federal spending. Economic theory offers a number of reasons to believe the opposite: federal revenue increases may also float state boats. To test these competing claims, I examine for the first time the relationship between total federal revenues and state revenues. I find that, contra the NFIB plurality, increases in federal revenue -- controlling, of course, for economic performance and other factors -- are associated with a large and statistically significant increase in state revenues. This version of the study additionally provides extensive background explanations of underlying economic concepts for readers unfamiliar with the prior public finance literature.

Valuing the Right to Sue: An Empirical Examination of Nonprofit Agency Costs

Do stakeholders’ suits against managers reduce agency costs? I examine this question using a large panel of private-foundation tax returns and hand-collected data on state-law variations in the right of donors to sue wayward managers of nonprofits. In both difference-in-differences and triple-difference estimations, I find on average that standing to sue substantially increases donations and reduces the share of firms’ expenses devoted to administrative costs among private foundations. These outcomes are robust to other estimating strategies, such as propensity-score matching and regression adjustment with inverse probability weights. Coefficients are smaller and less precise among large operating charities. I argue that my results weigh in favor of expanded donor standing to sue, at least for foundations. My findings also suggest that the agency costs of philanthropic organizations are substantial, which has implications for, among other policy debates, tax policies that encourage perpetual lived philanthropy.

The Problem of Intra-Personal Cost

“Externalities”, or harms to others, provide a standard justification for government intervention in the private market. There is less agreement over whether government is justified in correcting “internalities,” or harms to self the self is largely powerless to avoid. While some of the internality dispute is philosophical, some is practical. Critics suggest government lacks information to regulate internalities, and that any intervention would inefficiently distort a private market for self-help. In this Article, I show that these critiques of regulation overlook well-established tools of externality regulation, as well as a burgeoning literature on the measurement of internalities. Having answered the “should” question, I move on to “how?” I examine the established tools of externality regulation, and consider to what extent the standard advice of the externality literature extends to internality regulation. I find some surprising results, such as that “carrots” may at times be an attractive alternative to “sticks,” and that even large taxes on internalities can produce a so-called “double dividend.” I also compare the traditional regulatory options to “nudges” and other forms of cognitively-informed government interventions. I show a set of cases in which nudges may be preferable to either taxes or command and control regulation.Thus, my analysis also helps to resolve a second, related, debate over the propriety of nudges. The nudge debate has almost exclusively revolved around whether nudges avoid philosophical objections to paternalistic government regulation. I offer instead a new reason to employ nudges in some cases: they are more efficient.

Donor Reaction to Salient Disclosures of Nonprofit Executive Pay: A Regression-Discontinuity Approach

We evaluate the effect of highly salient disclosure of private college and university president compensation on subsequent donations. Using a differences-in-discontinuities approach to compare institutions that are highlighted in the Chronicle of Higher Education’s annual “top 10” list of most-highly compensated presidents against similar others, we find that appearing on a top 10 list is associated with reduced average donations of up to US

Web Extension for: The Effect of National Revenues on Sub-National Revenues: Evidence from the U.S.

5.0 million in the first full fiscal year following disclosure, despite greater fund-raising by “top 10” schools. We also find some evidence that top 10 appearances are correlated with slower compensation growth and rising enrollment in subsequent years. We interpret these results as consistent with the hypothesis that donors care about compensation but are typically inattentive to pay levels. We discuss the implications of these findings for the regulation of nonprofits and for our broader understanding of the pay-setting process at for-profit as well as nonprofit organizations.

Paying for Altruism: The Case of Organ Donation Revisited

I present for the first time an empirical examination of the impact of total federal revenues on total sub-national proceeds. Prior theory recognizes that the effects of national revenues on sub-national revenue-raising are ambiguous. Earlier studies have focused on vertical relationships between particular tax bases, such as the impact of federal commodity taxes on state or provincial commodity tax rates. Using a panel of data from U.S. states over the recent decade, I find an economically and statistically significant degree of federal crowding in of state revenues. I note the potential implications of these results for fiscal federalism theory and legal controversies over federal conditional spending.For copyright reasons, only the abstract of the full article is freely available online. This brief web appendix provides results for 2SLS robustness checks omitted from the published edition. Interested readers may contact the author for the full article.

Myopia, Fiscal Federalism, and Unemployment Insurance: Time to Reform UI Financing

Although many commentators have called for increased efforts to incentivize organ donations, theorists and some evidence suggest these efforts will be ineffective or even could perversely crowd out altruistic efforts. Prior papers examining the impact of tax incentives for donations generally report zero or negative coefficients. We argue these studies incorrectly define their tax variables, and rely on difference-in-differences methods despite likely failures of the requisite parallel trends assumption. We therefore aim to identify the causal effect of tax incentive legislation to serve as an organ donor on living related and unrelated kidney donation rates in the U.S states using more precise tax data and allowing for heterogenous and time-variant causal effects. Employing a synthetic control method, we find that the passage of tax incentive legislation increased living unrelated kidney donation rates by about 52 percent in New York relative to a comparable synthetic New York in the absence of legislation. We show that this causal effect is robust to the exclusion of any particular state as well as to the use of a very small number of comparison states.