(Un)Informed Charitable Giving

31 Pages Posted: 23 Dec 2011

See all articles by Silvana Krasteva

Silvana Krasteva

Texas A&M University

Huseyin Yildirim

Duke University - Department of Economics

Date Written: December 12, 2011

Abstract

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.

Keywords: charitable giving, search cost, value of information, crowding-out, warm-glow

JEL Classification: H00, H41, D82, D83

Suggested Citation

Krasteva, Silvana Simeonova and Yildirim, Huseyin, (Un)Informed Charitable Giving (December 12, 2011). Economic Research Initiatives at Duke (ERID) Working Paper No. 117. Available at SSRN: https://ssrn.com/abstract=1975522

Silvana Simeonova Krasteva

Texas A&M University ( email )

Langford Building A
798 Ross St.
College Station, TX 77843-3137
United States
(979) 845-7384 (Phone)

HOME PAGE: http://econweb.tamu.edu/skrasteva/

Huseyin Yildirim (Contact Author)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States
919-660-1805 (Phone)
919-684-8974 (Fax)

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