The Dark Side of Transparency: Mission Variety and Industry Equilibrium in Decentralized Public Good Provision Gani Aldashev Esteban Jaimovichy Thierry Verdierz January 2021 Abstract We study the implications of transparency policies on decentralized public good provision. The moral hazard inside non-profits interacts with the competitive struc- ture of the sector under alternative informational regimes. More transparency on the use of funds has an ambiguous effect on the total public good provision and donor’s welfare. Transparency encourages non-profits to more actively curb rent-seeking in- side organizations, but it also tilts the playing field against non-profit managers facing higher monitoring costs, inducing them to abandon their missions and reducing non- profit diversity. Donors’welfare is lower under transparency for intermediate levels of asymmetry in monitoring costs. Keywords: non-profit organizations, charitable giving, altruism, transparency. JEL codes: L31, D64, D43, D23. ECARES, SBS-EM, Université libre de Bruxelles (ULB), and Ronald Coase Visiting Professor at TILEC, Tilburg University. Mailing address: 50 Avenue Roosevelt, CP 114, 1050 Brussels, Belgium. Email:
[email protected]. yUniversity of Surrey. Mailing address: School of Economics, Guildford, Surrey, GU2 7XH, UK. Email:
[email protected]. zCorresponding author. Ecole des Ponts - Paris Tech, PUC-Rio, and CEPR. Mailing address: PSE, 48 Boulevard Jourdan, 75014 Paris, France. Email:
[email protected]. 1 1 Introduction The traditional view in economics considers private profit-oriented firms as the main channel of provision of private goods, and governments as the main providers of public goods. This view is an imperfect representation of real-life economies.