An Experimental Test of the Crowding Out Hypothesis

Abstract

We report the results of laboratory experiments that examine whether third-party contributions crowd out private giving to charity. Subjects play a single dictator game with a charity as the recipient. The subject chooses his preferred charity from a list. There are four treatment combinations: two initial allocations and two frames. Initial allocations are either US $18 for the subject and US $2 for the charity, or US $15 and US $5, respectively, and the subject is then given the opportunity to allocate additional funds if desired. The decision frame is also varied to affect subjects' perceptions of the task. In one frame, subjects are simply informed of the initial allocations between themselves and their chosen charity. In the other, subjects are told that their US $20 allocation has been taxed, and the amount allocated to their chosen charity. The structure of payoffs is identical in both frames. In the first frame, we see a level of crowding out that is close to zero, far less than other experimental studies; in the second frame, we observe nearly 100% crowding out.

Keywords: Crowding Out, Third-Party Contribution, Tax