Ester Manna (with Nadia Burani)
Since the late twentieth century, non-governmental organizations (NGOs) have become major players in delivering health, education, and human services in developing countries, channeling over 15 percent of total overseas development aid, roughly $15 to $20 billion annually (Aldashev and Navarra 2018; World Bank 2013). Yet, despite their altruistic mission, the aid sector is not immune to severe governance failures.
When the 2018 Oxfam Haiti scandal broke, investigations revealed that charity staff had sexually exploited vulnerable beneficiaries following the 2010 earthquake, and that the organization had failed to adequately report the allegations. Within months, Oxfam GB lost roughly 7,000 regular donors, had its funding suspended by the UK government and the European Commission, and lost £16 million. More importantly, the public debate that followed suggested that worker misconduct, and its concealment, was not an isolated incident. Observers pointed to a wider systemic problem tied to the fierce race for funding, which pressures charities to present a spotless record of success to donors at all costs.
Why do organizations dedicated to “doing good” struggle to prevent employees from “doing bad”? Existing economic research has examined how competition among charities can lead to excessive fundraising expenses or the diversion of funds (Aldashev and Verdier 2010), and how unethical workers sort between for-profit and non-profit sectors (Auriol and Brilon 2014). In our recent article in The Journal of Industrial Economics (Burani and Manna 2026), we examine a less explored channel: how competition for donations shapes the internal incentives NGOs give their staff, and why this competition makes scandals harder to prevent.
When “Doing Good” Creates Opportunities for “Doing Bad”
Development NGOs are led by mission-driven leaders who care deeply about project quality, yet they rely on donors who cannot directly observe day-to-day field operations. On the ground, execution is delegated to aid workers who can engage in two types of activities:
- Constructive effort, which is observable and directly improves project quality (such as building infrastructure or distributing medical supplies).
- Destructive effort, which happens out of sight and harms both vulnerable beneficiaries and the NGO’s reputation.
To manage field staff, NGOs rely on two main tools:
- Performance bonuses: Financial incentives that reward workers for measurable, constructive achievements to boost project quality.
- Internal monitoring and safeguarding: Investments in oversight, audits, and compliance mechanisms to detect and punish misconduct, reassuring donors that their contributions are safe.
In real-world aid operations, constructive and destructive activities are closely linked. In the Oxfam Haiti case, senior staff could abuse beneficiaries precisely because their legitimate reconstruction work gave them local presence, authority, and trust on the ground. Consequently, offering higher performance bonuses to stimulate project output inadvertently creates more opportunities for misconduct.
Our first key finding highlights an uncomfortable trade-off. As illustrated in Figure 1, when an NGO’s intrinsic mission orientation is relatively low, management focuses primarily on protecting its reputation and donor base, investing heavily in monitoring and fully deterring misconduct. However, once an NGO’s altruism exceeds a critical threshold, leadership values project output so highly that it shifts resources toward higher performance bonuses while cutting back on costly internal policing. Paradoxically, highly altruistic organizations find it harder to eliminate workplace misconduct than less mission-driven ones.
What happens when the market for donations becomes more crowded, either because lower entry barriers bring in more NGOs, or because organizations cluster around similar aid projects?
When many NGOs offer similar services, each organization tries to attract donors away from rivals by boosting visible project quality through higher performance bonuses. Yet because all competing NGOs adopt this strategy simultaneously, no single organization gains a relative quality advantage, and the total pool of donations becomes fragmented across many players.
As summarized in Table 1, this fragmentation erodes the financial return to internal oversight. Because monitoring is expensive and its benefit to the NGO depends on the size of the donor base it protects, cash-strapped NGOs cut back on safeguarding. Together, weaker monitoring and higher bonuses create a sharp trade-off: competition improves project quality, but it also leads to more worker misconduct and a higher risk of scandals. Comparing this market outcome to a social welfare benchmark confirms that competition leads to socially insufficient monitoring and excessive destructive behavior.
| Market Mechanism / Outcome | Intense Competition (Short Run: Fixed NGOs) | Intense Competition (Long Run: Lower Entry Costs) | Socially Optimal Benchmark |
| Constructive Effort & Project Quality | Higher | Higher | Lower |
| Internal Monitoring Intensity | Lower | Lower | Higher |
| Worker Misconduct (Destructive Effort) | Higher | Higher | Lower |
Table 1: How intensified competition for donations affects NGO governance and worker behavior compared to the social optimum.
Policy Implications
This tension is reflected in how governments regulate the aid sector. While countries like Ethiopia (through its 2009 legislation) imposed strict entry barriers on foreign NGOs, others like Kenya encouraged open entry, seeing a boom of over 12,000 registered NGOs. While an open, competitive sector delivers high project output, our research warns that a proliferation of competing NGOs heightens the risk of governance failures unless paired with strong regulatory oversight.
Expecting NGOs to self-regulate in a fiercely competitive funding environment is unrealistic; protecting vulnerable beneficiaries requires targeted policy interventions:
- Reduce competitive fundraising pressures: Institutional donors and governments can mitigate the race for individual grants by expanding multi-year pooled funding and collaborative consortia, such as UN Country-Based Pooled Funds (CBPFs) or the Dutch Relief Alliance, which ease donor fragmentation and preserve resources for internal oversight.
- Enforce sector-wide safeguarding standards: Because mission-oriented NGOs naturally prioritize project output over policing, public donors should make strict safeguarding audits a binding prerequisite for grant eligibility. Following the 2018 scandals, for instance, the UK government and the European Commission tied aid funding to certified compliance with the Core Humanitarian Standard (CHS) and backed the Misconduct Disclosure Scheme to stop abusers from moving unchecked between charities.
- Support independent, beneficiary-driven reporting: Because individual NGOs do not fully internalize the wider social harm of misconduct, establishing external reporting channels, such as UN Inter-Agency Community-Based Complaint Mechanisms (CBCMs), which provide independent local hotlines and focal points, directly increases detection probabilities and brings NGO governance closer to the social optimum.
References
- Aldashev, G. and C. Navarra (2018), “Development NGOs: Basic Facts”, Annals of Public and Cooperative Economics 89(1): 125–155.
- Aldashev, G. and T. Verdier (2010), “Goodwill Bazaar: NGO Competition and Giving to Development”, Journal of Development Economics 91(1): 48–63.
- Auriol, E. and S. Brilon (2014), “Anti-Social Behavior in Profit and Nonprofit Organizations”, Journal of Public Economics 117(9): 149–161.
- Burani, N. and E. Manna (2026), “Bad NGOs? Competition in the Market for Donations and Workers’ Misconduct”, The Journal of Industrial Economics 74(3): 367–383.
- World Bank (2013), World Bank Civil Society Engagement: Review of Fiscal Years 2010–2012, World Bank.
