Andreoni-Mcguire Algorithm and the Limits of Warm-Glow Giving

21 Pages Posted: 20 Apr 2013

See all articles by Huseyin Yildirim

Huseyin Yildirim

Duke University - Department of Economics

Date Written: January 26, 2013

Abstract

This paper provides a full equilibrium characterization of warm-glow giving à la Andreoni (1989, 1990) by extending the Andreoni-McGuire (1993) algorithm. The characterization indexes individuals according to their free-riding or “dropout” levels of the public good. The dropout level is finite for an individual whose donation is always dictated by some altruism. We show that if all individuals have finite dropout levels, then the crowding-out becomes complete as the population size grows. This suggests that in a large economy, the crowding-out is incomplete only when a non-negligible fraction of individuals behaves as though they were pure warm-glow givers. But since these individuals are also the only contributors in a large economy, the incomplete crowding-out must be zero. We discuss implications of these extreme crowding-out predictions for charitable behavior and fund-raising strategies.

Keywords: altruism, warm-glow, crowding-out

JEL Classification: H00, H30, H50

Suggested Citation

Yildirim, Huseyin, Andreoni-Mcguire Algorithm and the Limits of Warm-Glow Giving (January 26, 2013). Economic Research Initiatives at Duke (ERID) Working Paper No. 143. Available at SSRN: https://ssrn.com/abstract=2254111

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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