Charity as a Signal of Trustworthiness

Abstract

Being perceived as trustworthy comes with substantial economic benefits in many situations. Making other people think you are a trustworthy person may, therefore, be an important motive for charity and other forms of prosocial behavior, provided these activities work as signals of trustworthiness. This paper shows that donating money to an NGO substantially raises the other players' beliefs about the donorsﾒ trustworthiness in a simple trust game. Consequently, donors receive higher transfers. The magnitude of these benefits is substantial.

Keywords: charity, signaling, trust, trustworthiness

JEL Classification: C72, C92, H41