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Crowd-out and diversity

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  • Hungerman, Daniel M.

Abstract

Research has shown that altruism is lower in diverse communities. Can this phenomenon be counteracted by government intervention? To answer this question, this paper introduces diversity to the canonical model of "warm glow" giving. Diversity may have two effects on incentives: it may attenuate individuals' altruistic preferences for public goods, and it may "cool off" the warm glow that individuals get from voluntarism. Either of these effects leads to diverse communities having lower levels of public goods, consistent with prior research. However, these effects have opposite implications for the efficacy of government intervention. I then empirically investigate whether government intervention is more effective in diverse communities. For identification, I exploit the Supreme Court-mandated 1991 expansion of the SSI program. Using a new dataset of United Methodist churches from 1984 to 2000, the results show that the expansion of SSI crowded-out charitable spending by churches. The crowd-out estimate for the average church is reasonably large, but this masks significant differences in crowd-out between communities. Crowd-out occurred almost entirely in relatively homogeneous communities; there is only modest evidence of crowd-out in racially diverse communities. Thus diverse communities, while having the lowest levels of altruism, are in this instance the most amenable to government intervention.

Suggested Citation

  • Hungerman, Daniel M., 2009. "Crowd-out and diversity," Journal of Public Economics, Elsevier, vol. 93(5-6), pages 729-740, June.
  • Handle: RePEc:eee:pubeco:v:93:y:2009:i:5-6:p:729-740
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    Cited by:

    1. Ronen Bar-El & Teresa García-Muñoz & Shoshana Neuman & Yossef Tobol, 2013. "The evolution of secularization: cultural transmission, religion and fertility—theory, simulations and evidence," Journal of Population Economics, Springer;European Society for Population Economics, vol. 26(3), pages 1129-1174, July.
    2. Harrison, Teresa & Laincz, Chris, 2013. "Nonprofits, Crowd-Out, and Credit Constraints," School of Economics Working Paper Series 2013-5, LeBow College of Business, Drexel University.
    3. Philipp Ager & Antonio Ciccone, 2014. "Agricultural risk and the spread of religious communities," Economics Working Papers 1432, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2016.
    4. Gronberg, Timothy J. & Luccasen, R. Andrew & Turocy, Theodore L. & Van Huyck, John B., 2012. "Are tax-financed contributions to a public good completely crowded-out? Experimental evidence," Journal of Public Economics, Elsevier, vol. 96(7-8), pages 596-603.
    5. Urbain Thierry YOGO, 2015. "Ethnic Diversity and the Efficiency of Public Spending in Developing Countries," Working Papers 201513, CERDI.
    6. Paul Bingley & Ian Walker, 2013. "There’s no such thing as a free lunch: evidence of altruism and agency from household expenditure responses to child nutrition programs," Review of Economics of the Household, Springer, vol. 11(3), pages 371-392, September.
    7. R. Isaac & Douglas Norton, 2013. "Endogenous institutions and the possibility of reverse crowding out," Public Choice, Springer, vol. 156(1), pages 253-284, July.
    8. Andreoni, James & Payne, A. Abigail & Smith, Justin & Karp, David, 2016. "Diversity and donations: The effect of religious and ethnic diversity on charitable giving," Journal of Economic Behavior & Organization, Elsevier, vol. 128(C), pages 47-58.
    9. James Alm & Carolyn J. Bourdeaux, 2013. "Applying Behavioral Economics to the Public Sector," Hacienda Pública Española, IEF, vol. 206(3), pages 91-134, September.
    10. Michael Insler & Bryce McMurrey & Alexander F. McQuoid, 2016. "From Broken Windows to Broken Bonds: Militarized Police and Social Fragmentation," Departmental Working Papers 53, United States Naval Academy Department of Economics.
    11. Philipp Ager & Antonio Ciccone, 2013. "Rainfall Risk and Religious Membership in the Late Nineteenth-Century US," Working Papers 2013-17, FEDEA.
    12. Hungerman, Daniel M., 2014. "Public goods, hidden income, and tax evasion: Some nonstandard results from the warm-glow model," Journal of Development Economics, Elsevier, vol. 109(C), pages 188-202.
    13. Makowsky, Michael D., 2011. "A theory of liberal churches," Mathematical Social Sciences, Elsevier, vol. 61(1), pages 41-51, January.
    14. Urbain Thierry Yogo, 2015. "Ethnic Diversity and the Efficiency of Public Spending in Developing Countries," Working Papers halshs-01161599, HAL.
    15. Adam D. Rennhoff & Mark F. Owens, 2012. "Competition and the Strategic Choices of Churches," American Economic Journal: Microeconomics, American Economic Association, vol. 4(3), pages 152-170, August.
    16. Achyut Kafle & Stephen K. Swallow & Elizabeth C. Smith, 2015. "Does Public Funding Affect Preferred Tradeoffs and Crowd-In or Crowd-Out Willingness to Pay? A Watershed Management Case," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 60(3), pages 471-495, March.
    17. repec:lan:wpaper:615522 is not listed on IDEAS
    18. Raphaël Franck & Laurence Iannaccone, 2014. "Religious decline in the 20th century West: testing alternative explanations," Public Choice, Springer, vol. 159(3), pages 385-414, June.

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    Crowd out Religion Diversity;

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