This study examines ways in which the scale economies of charities can be measured and investigates the use of conversion ratios as indicators of scale efficiency. Problems and difficulties inherent in the use of these ratios are detailed. The analysis then employs nonparametric tests (Mann‐Whitney and Kruskal‐Wallis tests), based on the identified conversion ratios, to examine for the existence of scale economies in the operation of the 500 largest fundraising charities in England and Wales. The statistical analysis provides evidence of scale economies and suggests that scale efficiency gains have not as yet been exhausted. The charity sector therefore appears to be characterised by increasing returns to scale with further growth necessary before optimal size, as indicated by constant returns to scale, is achieved.
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Hyndman et al. (1999) studied this question.