The relationship between donors and social entrepreneurs is often accompanied by diverse interest conflicts. According to Andreoni (1998, 2006), the significant and often largest part of the initial financial need of a social entrepreneur or a major new initiative of an existing charity originates from a lead donor. In this paper we consider a contracting situation in which the lead donor and the entrepreneur disagree on the optimal level of fundraising. More specifically, the lead donor dislikes high fundraising. Irrespective of the exact cause of the preference mismatch, the analysis examines how the grantor’s direct regulation of the fundraising share affects the entrepreneurial decision calculus.
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