Exploring the link between government funding and efficiency in nonprofit colleges

Abstract

Previous literature has suggested that federal funding can hinder the efficiency of nonprofit organizations, but this has yet not been empirically tested. This study used a two‐stage data envelopment analysis (DEA) model to measure the efficiency of a set of private nonprofit teaching‐oriented colleges, then estimate the impact of federal and state funding on organizational efficiency. The findings indicate that, on average, increases in neither state nor federal funding effect efficiency of nonprofit colleges. Increasing state funding negatively impacted the efficiency of public colleges (N = 799). This study suggests that the challenges for nonprofits that accompany government funding may not rise to a quantifiable negative effect on efficiency.

The crowding‐out effect within government funding: Implications for within‐source diversification

“…With government becoming an important funding source for the nonprofit sector, the effects of government support on nonprofit operations have attracted long‐lasting attention. Although government funding offers various benefits (such as financial stability and institutional legitimacy) to help nonprofits overcome voluntary failures (Salamon, ), concerns also abound regarding the risks of nonprofits' dependence on government support for their autonomy and mission (e.g., Coupet, ; Grønbjerg, ; Guo, ; Lee & Woronkowicz, ; Mosley, ; Smith & Lipsky, ). Salamon and Toepler () summarized the pathological effects of government funding into four categories: (a) the potential loss of autonomy or independence, (b) managerial challenges of contractual relationship for nonprofits (“vendorism”), (c) bureaucratization resulting from government programmatic and accounting requirements, and (d) subdued advocacy activities to maintain government funding.…”

Toward a valid approach to nonprofit efficiency measurement

“…Pina, Torres, and Bachiller () use DEA to measure technical efficiency, finding that higher efficiency led to higher nonprofit solvency. Coupet () uses DEA to measure efficiency, finding that increase in government funding levels does not impede nonprofit efficiency. Glisson and Martin () used the number of clients served per 10,000 dollars spent to measure the efficiency of nonprofit human services organizations.…”

Nonprofit Benchmarking With Data Envelopment Analysis

“…Environmental conditions and managerial best practices are best explored with further inquiry, which is key to any benchmarking practice geared toward organizational learning. Applications of DEA that involve environmental variables, as well as other benchmarking techniques including environmental variation, are referenced in Coelli (1996) and Coupet (2018).…”

“…It has had less use in nonprofit management, but there have been some examples of scholarship where DEA is operationalized as a key performance dependent variable in nonprofit research. This is key since researchers have sometimes lacked valid output-based measure of performance (Bryan, 2019;Coupet, 2018;Ford & Ihrke, 2020;Fulton, 2020;Luksetich & Hughes, 1997;Miragaia et al, 2016).…”

“…Inputs and outputs should be vetted by rigorous management processes and be agreed upon by all stakeholders that plan to strategically use DEA. Outputs should be quantifiable and strategically important, while inputs, also quantifiable, should theoretically increase outputs or improve outcomes as they increase (Coupet, 2018). For instance, an increase in the number of volunteer drivers, holding other factors constant, should increase the number of trips each nonprofit can make.…”