Increasing Fundraising Success by Decreasing Donor Choice

Abstract

Suggested contributions, membership categories, and discrete, incremental thank-you gifts are devices often used by benevolent associations that provide public goods. Such devices focus donations at discrete levels, thereby effectively limiting the donors' freedom to give. We study the effects on overall donations of the tradeoff between rigid schemes that severely restrict the choices of contribution on the one hand, and flexible membership contracts on the other, taking into account the strategic response of contributors whose values for the public good are private information. We show flexibility dominates when i) the dispersion of donors' taste for the public good increases, ii) the number of potential donors increases, and iii) there is greater funding by an external authority. Our theoretical results are consistent with three basic patterns we discover in the membership schemes of National Public Radio stations: stations offer a larger number of suggested contribution levels — a proxy for flexibility — as i) the incomes of the population served become more diverse, ii) the population of the coverage area increases, and iii) there is greater external support from the Corporation for Public Broadcasting.

Keywords: private provision, categories, restricting donations, heterogeneity, crowding out

JEL Classification: H41, D61, D82