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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.

Suggested Citation

  • James Andreoni & A. Abigail Payne, 2003. "Do Government Grants to Private Charities Crowd Out Giving or Fund-raising?," American Economic Review, American Economic Association, vol. 93(3), pages 792-812, June.
  • Handle: RePEc:aea:aecrev:v:93:y:2003:i:3:p:792-812 Note: DOI: 10.1257/000282803322157098
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    References listed on IDEAS

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    1. Vesterlund, Lise, 2003. "The informational value of sequential fundraising," Journal of Public Economics, Elsevier, pages 627-657.
    2. Susan Rose-Ackerman, 1982. "Charitable Giving and “Excessive†Fundraising," The Quarterly Journal of Economics, Oxford University Press, vol. 97(2), pages 193-212.
    3. Andreoni, James, 1988. "Privately provided public goods in a large economy: The limits of altruism," Journal of Public Economics, Elsevier, pages 57-73.
    4. Timothy Besley & Stephen Coate, 1997. "An Economic Model of Representative Democracy," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 85-114.
    5. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
    6. 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, pages 323-345.
    7. Okten, Cagla & Weisbrod, Burton A., 2000. "Determinants of donations in private nonprofit markets," Journal of Public Economics, Elsevier, pages 255-272.
    8. Ted O'Donoghue & Matthew Rabin, 1999. "Incentives for Procrastinators," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 769-816.
    9. 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, pages 83-96.
    10. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 38(2), pages 112-134.
    11. Romano, Richard & Yildirim, Huseyin, 2001. "Why charities announce donations: a positive perspective," Journal of Public Economics, Elsevier, pages 423-447.
    12. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, pages 25-49.
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