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Do Government Grants to Private Charities Crowd Out Giving or Fund-raising?

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  • James Andreoni
  • A. Abigail Payne

Abstract

Economists have long observed that crowding out of government grants to private charities is incomplete. The accepted belief is that givers treat the grants as imperfect substitutes for private giving. We theoretically and empirically investigate a second reason: the strategic response of a charity will be to reduce fund-raising efforts after receiving a grant. Employing panel data from arts and social service organizations, we find that government grants cause significant reductions in fund-raising. This adds a new dimension to the policy discussions - analysts should account for the behavioral responses of the charity, as well as the donors, to government grants.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/000282803322157098
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 93 (2003)
Issue (Month): 3 (June)
Pages: 792-812

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Handle: RePEc:aea:aecrev:v:93:y:2003:i:3:p:792-812

Note: DOI: 10.1257/000282803322157098
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  1. Rose-Ackerman, Susan, 1982. "Charitable Giving and "Excessive" Fundraising," The Quarterly Journal of Economics, MIT Press, vol. 97(2), pages 193-212, May.
  2. Payne, A. Abigail, 1998. "Does the government crowd-out private donations? New evidence from a sample of non-profit firms," Journal of Public Economics, Elsevier, vol. 69(3), pages 323-345, September.
  3. Weisbrod, Burton A. & Dominguez, Nestor D., 1986. "Demand for collective goods in private nonprofit markets: Can fundraising expenditures help overcome free-rider behavior?," Journal of Public Economics, Elsevier, vol. 30(1), pages 83-96, June.
  4. Tim Besley & Stephen Coate, . ""An Economic Model of Representative Democracy''," CARESS Working Papres 95-02, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  5. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February.
  6. Vesterlund, Lise, 2003. "The informational value of sequential fundraising," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 627-657, March.
  7. Okten, Cagla & Weisbrod, Burton A., 2000. "Determinants of donations in private nonprofit markets," Journal of Public Economics, Elsevier, vol. 75(2), pages 255-272, February.
  8. Ted O'Donoghue & Matthew Rabin, 1999. "Incentives For Procrastinators," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 769-816, August.
  9. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. Andreoni, James, 1988. "Privately provided public goods in a large economy: The limits of altruism," Journal of Public Economics, Elsevier, vol. 35(1), pages 57-73, February.
  11. Romano, Richard & Yildirim, Huseyin, 2001. "Why charities announce donations: a positive perspective," Journal of Public Economics, Elsevier, vol. 81(3), pages 423-447, September.
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