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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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Problem definition: Six million refugees have been living in camps in 2021 due to multiple armed conflicts worldwide. Regulations often impede refugees’ integration into host countries; thus, refugees have to seek help from humanitarian organizations (HOs). HOs traditionally provide in-kind (e.g., food) assistance and now offer cash (monetary assistance) that refugees can spend at local retail stores. However, cash assistance can be exploited by local retailers’ market power, which challenges HOs’ mission of helping refugees while doing no harm to host communities. Practical relevance: Completely informed by field research in three refugee camps in northwestern Greece, we analyze the trade-off between in-kind and cash assistance from the perspective of an HO. We propose two cash assistance policies, implementable by a partnership between the HO and the local government, to curb the retailer’s market power and ensure that the refugees, the local residents, and the retailer are better off than if only in-kind assistance is provided. Methodology: We use field research to define our research setting and support our main modeling assumptions and parameters. Then, we use a game-theoretical model to analyze the interactions among multiple stakeholders in an ecosystem consisting of an HO, refugees, a monopolistic retailer, local residents, and a local government. Results: We demonstrate the effectiveness of our proposed cash assistance policies that benefit refugees and local residents while ensuring the retailer’s profitability. In particular, a price-dependent cash assistance (PDCA) policy aligns the incentives between the retailer and the HO-government partnership. This new policy for cash assistance acts as a lever for the retailer to voluntarily set desirable prices, which benefit both refugees and their host community. Managerial implications: We provide tools and implementable policies that guide HOs to improve their budget allocation between in-kind and cash assistance for refugees living in areas where local market power exists. Moreover, we clearly outline the roles of HOs and the local government in a partnership for cash assistance to refugees.