Optimal Incentives to Give

48 Pages Posted: 24 Jun 2020 Last revised: 30 Aug 2021

See all articles by Marco Castillo

Marco Castillo

Department of Economics, Texas A&M University; IZA Institute of Labor Economics

Ragan Petrie

Texas A&M University - Department of Economics; University of Melbourne - Melbourne Institute: Applied Economic & Social Research

Date Written: August 1, 2021

Abstract

We explore optimal incentives, using the context of charitable giving, with a large-scale field experiment involving 26 charities and over 112,000 unique individuals. The price of giving is varied by offering a fixed match if the donation meets a threshold amount (e.g. “give at least $25 and the charity receives a $25 match”). We structurally estimate a model of charitable giving with behavioral types and employ the estimates to evaluate the effectiveness of various counterfactual incentive schemes. Our estimates suggest using schemes that are robust to behavioral biases, such as ignoring marginal subsidies. These optimal incentives were implemented in a two-year, follow-up field study. As predicted by theory and our simulations, the high threshold scheme increased
out-of-pocket donations, by 5.4%. Our findings highlight the pitfalls of relying on a particular parameterization of a policy to evaluate effectiveness. The best-guess incentives in our initial field experiment turned out to be ineffective at increasing donations because optimal incentives should have been set much higher.

Keywords: charitable giving, mechanism design, field experiment

JEL Classification: D64, H41, C93, D91

Suggested Citation

Castillo, Marco and Petrie, Ragan, Optimal Incentives to Give (August 1, 2021). Available at SSRN: https://ssrn.com/abstract=3616460 or http://dx.doi.org/10.2139/ssrn.3616460

Marco Castillo

Department of Economics, Texas A&M University ( email )

Allen Building
4228 TAMU
College Station, TX 77843-3137
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Ragan Petrie (Contact Author)

Texas A&M University - Department of Economics ( email )

4228 TAMU
College Station, TX 77843-4228
United States

HOME PAGE: http://www.raganpetrie.org/

University of Melbourne - Melbourne Institute: Applied Economic & Social Research ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

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