The Price of Warm Glow

46 Pages Posted: 22 Jun 2013

See all articles by Andrew Lilley

Andrew Lilley

The University of Sydney

Robert Slonim

The University of Sydney; IZA Institute of Labor Economics

Abstract

This paper presents a model and experimental evidence to explain the "volunteering puzzle" where agents prefer volunteering time to donating money when monetary donations are, ceteris paribus, more efficient for providing resources to charity. In the model agents receive heterogeneous utility from pure and impure altruism (Andreoni 1989) that permits warm glow to vary between monetary donations and volunteering, thus allowing preferences for impure altruism to rationalize inefficient allocation decisions. We define a measure of the price of impure altruism as the additional proportion of income sacrificed by a donor to give in the dimension that maximizes her utility, holding the overall charitable contribution constant. To test the predictions of the model we ran an experiment in which we varied within-subjects the costs and benefits of monetary and volunteer donations. We also primed between-subjects the emphasis on the donation value to the charity (pure altruism) or the sacrifice to the donor (impure warm-glow altruism). Consistent with the model's predictions, the experiment shows that priming pure altruism increases the efficiency of donation choices, substitutability of donations between money and time and crowding out. Nonetheless, while greater impurity results in a more inefficient allocation of resources, empirically we find it increases overall charitable donations. We discuss the implications of our experimental results for both theory and policy.

Keywords: altruism, warm glow, volunteering, monetary donations, laboratory experiments

JEL Classification: D64, D78, H41, C91

Suggested Citation

Lilley, Andrew and Slonim, Robert, The Price of Warm Glow. IZA Discussion Paper No. 7445. Available at SSRN: https://ssrn.com/abstract=2283560

Andrew Lilley (Contact Author)

The University of Sydney

University of Sydney
No Address Available, NC

Robert Slonim

The University of Sydney ( email )

University of Sydney
Sydney, NC NSW 2006
Australia

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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