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Why announce leadership contributions? : An experimental study of the signaling and reciprocity hypotheses

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Author Info
Potters, J.
Sefton, M.
Vesterlund, L. (Tilburg University, Center for Economic Research)

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Abstract

Why do fundraisers announce initial contributions to their charity? Potential explanations are that these announcements cause future donors to increase their contributions, either because they want to reciprocate the generosity of earlier donors, or because the initial contributions are seen as a signal of the charity's quality. Using experimental methods we investigate these two hypotheses. When only the first donor is informed of the public good's quality, subjects not only copy the initial contribution, but the first donor also correctly anticipates this response. While this result is consistent with both the signaling and the reciprocity explanations, the latter is unlikely to be the driving force. The reason is that announcements have no effect on contribution levels when the quality of the public good is common knowledge. Thus our results provide strong support for the signaling hypothesis.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 100.

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Date of creation: 2001
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Handle: RePEc:dgr:kubcen:2001100

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Find related papers by JEL classification:
C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  3. Marx, Leslie M & Matthews, Steven A, 2000. "Dynamic Voluntary Contribution to a Public Project," Review of Economic Studies, Blackwell Publishing, vol. 67(2), pages 327-58, April.
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  4. Dufwenberg, M. & Kirchsteiger, G., 1998. "A theory of sequential reciprocity," Discussion Paper 37, Tilburg University, Center for Economic Research. [Downloadable!]
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  5. Forsythe, Robert & Lundholm, Russell & Rietz, Thomas, 1999. "Cheap Talk, Fraud, and Adverse Selection in Financial Markets: Some Experimental Evidence," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 12(3), pages 481-518.
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  7. Hal R. Varian, 1994. "Sequential Provision of Public Goods," Public Economics 9401003, EconWPA. [Downloadable!]
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  8. Cooper, David J & Garvin, Susan & Kagel, John H, 1997. "Adaptive Learning vs. Equilibrium Refinements in an Entry Limit Pricing Game," Economic Journal, Royal Economic Society, vol. 107(442), pages 553-75, May. [Downloadable!] (restricted)
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  12. Bolton, Gary E, 1991. "A Comparative Model of Bargaining: Theory and Evidence," American Economic Review, American Economic Association, vol. 81(5), pages 1096-136, December. [Downloadable!] (restricted)
  13. 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. [Downloadable!] (restricted)
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  18. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Potters, J.J.M. & Shefton, M. & Vesterlund, L., 2003. "After you - endougenous sequencing in voluntary contribution games," Discussion Paper 98, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  2. Heijden, E. van der & Moxnes, E., 2003. "Leading by example? Investment decisions in a mixed sequential-simultaneous public bad experiment," Discussion Paper 38, Tilburg University, Center for Economic Research. [Downloadable!]
  3. Ronald J. Baker II & James M. Walker & Arlington W. Williams, 2006. "Matching Contributions and the Voluntary Provision of a Pure Public Good: Experimental Evidence," Caepr Working Papers 2006-007, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington, revised Dec 2007. [Downloadable!]
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