T his study analyzes the trade-off between funding strategies and operational performance in humanitarian operations.If a Humanitarian Organization (HO) offers donors the option of earmarking their donations, HO should expect an increase in total donations. However, earmarking creates constraints in resource allocation that negatively affect HO's operational performance. We study this trade-off from the perspective of a single HO that maximizes its expected utility as a function of total donations and operational performance. HO implements disaster response and development programs and it operates in a multi-donor market with donation uncertainty. Using a model inspired by Scarf's minimax approach and the newsvendor framework, we analyze the strategic interaction between HO and its donors. The numerical section is based on real data from 15 disasters during the period 2012-2013. We find that poor operational performance has a larger effect on HO's utility function when donors are more uncertain about HO's expected needs for disaster response. Interestingly, increasing the public awareness of development programs helps HO to get more non-earmarked donations for disaster response. Increasing non-earmarked donations improves HO's operational efficiency, which mitigates the impact of donation uncertainty on HO's utility function.

Should Consumers Be Strategic?

Retailers have increasingly pursued initiatives to combine inventory located throughout their enterprise into a single stock from which customers anywhere in their distribution network may purchase. Also known as inventory pooling, this practice is well known to generate operational value by reducing inventory requirements and stock-outs. In “Inventory Integration with Rational Consumers,” Aflaki and Swinney examine a different consequence of pooling: how it influences customer purchasing behavior. They show that integration can lead to behavioral consequences resulting from changing customer purchasing incentives, especially for seasonal goods that are sold in end-of-season clearance sales. These behavioral effects can be negative, and can even outweigh the operational benefits of pooling, if pooling leads to an increase in clearance sale inventory availability that encourages more customers to wait for discounts before buying. Specific conditions that lead to negative (or positive) behavioral value of integration are discussed. Overall, the results illustrate that the ways customers react to inventory pooling can be just as important as its operational consequences.

Problem definition: U.S. nonprofits declare three types of expenses in their IRS 990 forms: program spending to meet beneficiaries’ needs; fundraising spending to raise donations; and administration spending to build and maintain capacity. Charity watchdogs, however, expect nonprofits to prioritize program spending over other categories. We study when such expectations may lead to the “starvation cycle” or underspending on administration and fundraising. Methodology/results: We characterize optimal budget allocations to program, fundraising, and administration spending categories using a two-period model, which also includes the nonprofit’s capacity, return on program spending (the net value of program spending to beneficiaries), and beneficiaries’ uncertain future needs. We find that the nonprofit’s capacity plays a significant role in the optimal allocation. The nonprofit should (a) at high capacity, spend only the necessary amount on administration to maintain its current capacity; (b) at moderate capacity, maintain its current capacity while limiting program spending in favor of fundraising; and (c) at low capacity, increase administration spending to expand its future capacity. When we compare the optimal allocations prescribed by our model to the actual spending levels reported by a foodbank network, we find that the foodbank underspends on administration and fundraising, suggesting the forces that lead to the starvation cycle may be in play. Another possibility is that the nonprofit’s own estimate of its return on program spending is higher than our estimate—At higher estimates of return on program, the gap between our prescribed solutions versus actual spending levels decreases. Managerial implications: Our paper introduces an important discussion on nonprofits’ starvation cycle and finds conditions that justify prioritizing administration and fundraising expenses. It also highlights that watchdogs should consider nonprofits’ return on program spending in addition to their capacity and future needs when evaluating them. Funding: T. O. Kotsi thanks the Onassis Foundation (Greece) for financial support. Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2020.0660 .

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