Modeling non-profit organisations’ funding diversification, Journal of Alternative Finance

There is a rich literature connecting for profit financial portfolio theory to non-profit organisations’ funding diversification policies. This research typically ignores fundamental specificities of the non-profit context. The present paper integrates three of these specificities: non-profits' performance being measured by other standards than their financial profitability, the non-proportionality between funding expenses and expected incoming funds due to varying marginal effects of the former, and crowding in/out effects between non-profit funding sources. It is shown that, contrary to what is the case in financial portfolio theory, a positive relation between expected performance and its variability cannot be taken for granted when increasing the number of non-profit's funding sources. An important reason for this is the presence of crowding effects, which therefore cannot be ignored when looking for the best non-profit's funding diversification strategy.