Optimal Incentives to Give

Abstract

We explore optimal incentives, using the context of charitable giving, with a large-scale field experiment involving 26 charities and over 112,000 unique individuals. The price of giving is varied by offering a fixed match if the donation meets a threshold amount (e.g. “give at least $25 and the charity receives a $25 match”). We structurally estimate a model of charitable giving with behavioral types and employ the estimates to evaluate the effectiveness of various counterfactual incentive schemes. Our estimates suggest using schemes that are robust to behavioral biases, such as ignoring marginal subsidies. These optimal incentives were implemented in a two-year, follow-up field study. As predicted by theory and our simulations, the high threshold scheme increased
out-of-pocket donations, by 5.4%. Our findings highlight the pitfalls of relying on a particular parameterization of a policy to evaluate effectiveness. The best-guess incentives in our initial field experiment turned out to be ineffective at increasing donations because optimal incentives should have been set much higher.

Keywords: charitable giving, mechanism design, field experiment

JEL Classification: D64, H41, C93, D91