Ex-post funding: How should a resource-constrained non-profit organization allocate its initial funds?

We study a resource allocation problem for an early-stage, resource-constrained non-profit organization (NPO) that implements social development projects for public good. The NPO uses a novel approach, which we term as the “ex–post funding” approach, to raise money from donors to fund these projects. In this approach, the NPO uses its initial funds to implement early phases of the project, and then securitizes the results from the completed phases using “result-certificates”. It then invites donors to purchase these certificates. The donations thus raised are used to recover the original funds and implement future phases of the project. The implementation of this approach is complicated when the projects must incur a large fixed cost before any benefits are delivered by the project, and the total benefit delivered is time sensitive. We show that there exists an optimal allocation of the initial funds between the fixed cost and implementation stages. We also analyze how the optimal allocation is affected by donor, project, and NPO characteristics. Our numerical studies suggest that even with relatively small initial funds and using the ex-post approach, the NPO can deliver more than 90% of the maximum possible benefit.