We consider the problem of a non–profit organization (NPO) raising contributions from donors to fund development projects. Donors care about the benefits provided to a target population, but are uncertain about the NPO’s efficiency in using the donations effectively. We model the NPO and donor as expected utility maximizers, with both their utilities increasing in the benefit provided by the project and compare the performance of the traditional form of fund raising, where the NPO seeks contributions from the donor before implementing the project, with an emerging practice of ‘payment for results’ wherein the NPO implements a project and seeks contribution from the donor to reimburse the funds spent. When the NPO knows the donor’s willingness to donate, we show that the payment for results approach provides a higher expected
benefit to the target population and results in higher expected utility for the donor. We also show that the payment for results approach provides higher expected benefit even when the NPO is uncertain about the donor’s willingness to donate, as long as the NPO’s disutility from a shortfall in funds (difference between funds spent and donor contribution) is sufficiently small. Interestingly, though the payment for results approach enables the more efficient NPO to raise a larger amount of donation, our results show that
the NPO may still prefer to adopt the traditional approach which gives it lesser donor contributions.