Misguiding donors and non-profit management by regulation: the role of ‘overhead’ costs

Overhead costs and the concomitant efficiency notion are frequently used both to measure non-profit organizations’ performance in research and to select non-profit organizations worthy of donations. The main message of this article is that their concept and interpretation are not always correctly understood, even not by (influential) regulators imposing some potentially misleading disclosure rules. The arguments presented in this article depart from a short overview of the relevant cost concepts and their correct calculation, and contrasts them with the indicators usually looked at in practice and research. The article closes with some recommendations for non-profit organizations, potential donors, and governments.