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How to Code a Million Missions: Developing Bespoke Nonprofit Activity Codes Using Machine Learning Algorithms

Abstract

National Taxonomy of Exempt Entities (NTEE) codes have become the primary classifier of nonprofit missions since they were developed in the mid-1980s in response to growing demands for a taxonomy of nonprofit activities (Herman in Nonprofit and Voluntary Sector Quarterly 19(3):293–306, 1990, Barman in Social Science History 37:103–141, 2013). However, the increasingly complex nature of nonprofits means that NTEE codes may be outdated or lack specificity. As an alternative, scholars and practitioners can create a bespoke taxonomy for a specific purpose by hand-coding a training dataset and using machine learning classifiers to apply the codes to a large population. This paper presents a framework for determining training set sizes needed to scale custom taxonomies using machine learning algorithms.

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Data Availability

Data and code to replicate the results presented in the article are available via the authors’ dedicated GitHub repository and Harvard Dataverse site: https://fjsantam.github.io/bespoke-npo-taxonomies/

Notes

  1. 1.

    Form 1023-EZ meta-data was downloaded from the IRS website: https://www.irs.gov/charities-non-profits/exempt-organizations-form-1023ez-approvals

  2. 2.

    See “Part IV. Foundation Classification” in the instructions for the 1023-EZ form (IRS, 2018).

  3. 3.

    See the entries for line 7 and line 12 in “Part III. Foundation Classification” (IRS, 2018).

  4. 4.

    Profits are maximized when firm production levels reach the point of diminishing returns to labor or capital, which is determined by identifying the point that the second derivative of the production function is equal to zero.

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Acknowledgements

Special thanks to the ARNOVA 2020 Conference Doctoral Fellowship Program participants, ARNOVA 2019 Conference panel feedback, and the USC’s Price School of Public Policy, The Center on Philanthropy & Public Policy’s “Philanthropy & Social Impact: A Research Symposium” (March 15, 2019).

Funding

Partial support for this research came from a Eunice Kennedy Shriver National Institute of Child Health and Human Development research infrastructure grant, P2C HD042828, to the Center for Studies in Demography & Ecology at the University of Washington.

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Correspondence to Francisco J. Santamarina.

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Appendix: Model Fit Formulas

Appendix: Model Fit Formulas

Metric Formula
Sensitivity \({\text{SN}} = \frac{{{\text{TP}}}}{{{\text{TP}} + {\text{FN}}}} = \frac{{{\text{TP}}}}{{\text{P}}}\)
Specificity \({\text{SP}} = \frac{{{\text{TN}}}}{{{\text{TN}} + {\text{FP}}}} = \frac{{{\text{TN}}}}{{\text{N}}}\)
Precision \({\text{PREC}} = \frac{{{\text{TP}}}}{{{\text{TP}} + {\text{FP}}}}\)
Recall \({\text{SN}} = \frac{{{\text{TP}}}}{{{\text{TP}} + {\text{FN}}}} = \frac{{{\text{TP}}}}{{\text{P}}}\)
F1 \(F_{1} = \frac{{{2} \cdot {\text{PREC}} \cdot {\text{REC}}}}{{{\text{PREC}} + {\text{REC}}}}\)
Accuracy \({\text{ACC}} = \frac{{{\text{TP}} + {\text{TN}}}}{{{\text{TP}} + {\text{TN}} + {\text{FN}} + {\text{FP}}}} = \frac{{{\text{TP}} + {\text{TN}}}}{{{\text{P}} + {\text{N}}}}\)
Balanced accuracy \(\begin{aligned} {\text{BA }} & = \frac{{\left( {{\text{Sensitivity}} + {\text{Specificity}}} \right)}}{2} \\ & = \left[ {\left( {\frac{{{\text{TP}}}}{{{\text{TP}} + {\text{FN}}}}} \right) + \left( {\frac{{{\text{TN}}}}{{{\text{TN}} + {\text{FP}}}}} \right)} \right]* \frac{1}{2} \\ \end{aligned}\)
Error \({\text{ERR}} = \frac{{{\text{FP}} + {\text{FN}}}}{{{\text{TP}} + {\text{TN}} + {\text{FN}} + {\text{FP}}}} = \frac{{{\text{FP}} + {\text{FN}}}}{{{\text{P}} + {\text{N}}}}\)
  1. Source: Balanced Accuracy’s first formulation comes from Kuhn (2019). The second formulation comes from Brodersen et al. (2010). Other formulas come from Saito and Rehmsmeier (n.d.).

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Santamarina, F.J., Lecy, J.D. & van Holm, E.J. How to Code a Million Missions: Developing Bespoke Nonprofit Activity Codes Using Machine Learning Algorithms. Voluntas (2021). https://doi.org/10.1007/s11266-021-00420-z

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Keywords

  • Nonprofit organizations
  • Classification
  • Machine learning
  • Custom taxonomies