Private Versus Collectivized Charity: Further Explorations Of The Crowding Out Debate

Part of Introduction: The question whether society can readily substitute public action for private initiative with respect to public goods is still very much open. Bergstrom, Blume and Varian (1986, hereafter BBV) and Andreoni (1993) challenge the proposition that government provision "crowds out" an exactly equal amount of private donations. Their analysis builds on original papers by Peter G. Warr (1982, 83) and Roberts (1987) which suggest that government policies toward privately provided public goods will be entirely neutral. Roberts, for instance, maintains that the introduction of large-scale government welfare programs in the U.S. was indeed accompanied by a one for one reduction in private charitable contributions. BBV question Roberts’ precise prediction of a "dollar for dollar" reduction in private contributions by challenging his assumption that the taxes paying for the government’s contribution are collected exclusively from those who were previously in the set of private contributors. Because BBV believe this group to be a small subset of the taxpaying population, its contribution via taxes will be much less than the total government expenditure. For this reason "crowding out" can be expected to be less than one for one. Even without this proviso, however, Andreoni’s laboratory experiments (1993) allow him to conclude that crowding out will be incomplete.