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Rational Inattention to Subsidies for Charitable Contributions

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  • Kimberly Scharf
  • Sarah Smith

    ()

Abstract

Evidence suggests that individuals fail to process all relevant attributes when making decisions. Recent literature has mainly focused on shrouded attributes. Here we present a simple model where agents rationally choose not to process attributes even when they are not shrouded, and we investigate its predictions for the case of subsidies for charitable donations. These are offered as rebates or matches. Both lower the price of giving, but, crucially, with different implications for rational non-processing choices. Survey and experimental evidence on donation responses to equivalent changes in the match and the rebate is consistent with our model of rational inattention.

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Bibliographic Info

Paper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 11/269.

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Length: 18 pages
Date of creation: Jul 2011
Date of revision:
Handle: RePEc:bri:cmpowp:11/269

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Keywords: Tax salience; rational inattention; charitable giving;

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References

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  1. James Andreoni & A Abigail Payne, 2001. "Government Grants to Private Charities: Do They Crowd-Out Giving or Fundraising?," Public Economics 0111001, EconWPA.
  2. Karlan, Dean & List, John, 2006. "Does Price Matter in Charitable Giving? Evidence from a Large-Scale Natural Field Experiment," Working Papers 13, Yale University, Department of Economics.
  3. Johansson-Stenman Olof & Svedsäter Henrik, 2008. "Measuring Hypothetical Bias in Choice Experiments: The Importance of Cognitive Consistency," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(1), pages 1-10, September.
  4. Douglas D. Davis & Edward L. Millner, 2004. "Rebates, Matches, and Consumer Behavior," Working Papers 0401, VCU School of Business, Department of Economics.
  5. Eckel, Catherine C. & Grossman, Philip J., 2003. "Rebate versus matching: does how we subsidize charitable contributions matter?," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 681-701, March.
  6. Charles T. Clotfelter, 1985. "Federal Tax Policy and Charitable Giving," NBER Books, National Bureau of Economic Research, Inc, number clot85-1.
  7. Gabaix, Xavier & Laibson, David I., 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," Scholarly Articles 4554333, Harvard University Department of Economics.
  8. John List & David Reiley, 2008. "Field experiments," Artefactual Field Experiments 00091, The Field Experiments Website.
  9. Raj Chetty & Adam Looney & Kory Kroft, 2009. "Salience and taxation: theory and evidence," Finance and Economics Discussion Series 2009-11, Board of Governors of the Federal Reserve System (U.S.).
  10. Catherine Eckel & Philip Grossman, 2008. "Subsidizing charitable contributions: a natural field experiment comparing matching and rebate subsidies," Experimental Economics, Springer, vol. 11(3), pages 234-252, September.
  11. Clotfelter, Charles T., 1985. "Federal Tax Policy and Charitable Giving," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226110486.
  12. Jennifer Brown & Tanjim Hossain & John Morgan, 2010. "Shrouded Attributes and Information Suppression: Evidence from the Field," The Quarterly Journal of Economics, MIT Press, vol. 125(2), pages 859-876, May.
  13. Jon Bakija & Bradley Heim, 2008. "How Does Charitable Giving Respond to Incentives and Income? Dynamic Panel Estimates Accounting for Predictable Changes in Taxation," NBER Working Papers 14237, National Bureau of Economic Research, Inc.
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Cited by:
  1. Sarah Smith, 2012. "Increasing Charitable Giving: What Can We Learn from Economics?," Fiscal Studies, Institute for Fiscal Studies, vol. 33(4), pages 449-466, December.

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