(Un)Informed Charitable Giving
Texas A&M University
Duke University - Department of Economics
December 12, 2011
Economic Research Initiatives at Duke (ERID) Working Paper No. 117
Evidence suggests that donors have little demand for information before giving to charity. To understand this behavior and its policy implications, we present a model in which each individual can acquire costly information about her true value of charity. We observe that an individual who considers giving less is less likely to become informed; and indeed, an uninformed donor is, on average, less generous than an informed one. This implies that since the free-rider problem in giving worsens in a larger population, the percentage of informed givers becomes vanishingly small, leaving the total expected donations strictly below its highest level to be reached by a fully informed population. We show that while a direct government grant to the charity causes severe crowding-out by discouraging information acquisition, a matching grant increases donations by encouraging it. We further show that a “warm-glow” motive for giving does not necessarily weaken incentives to be informed, and that a (first-order) stochastic increase in true values for charity may actually decrease donations.
Number of Pages in PDF File: 31
Keywords: charitable giving, search cost, value of information, crowding-out, warm-glow
JEL Classification: H00, H41, D82, D83Accepted Paper Series
Date posted: December 23, 2011
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