Inequality as determinant of donation: A theoretical modeling and empirical analysis of Korea

Recipient financial need is a crucial factor in donation decisions. This study proposes a novel model for determining financial donations, incorporating consumption levels of both donor and recipient within a societal context. Solving our model’s utility maximization problem reveals how consumption, donation, and savings are interlinked. Empirical evidence reinforces these findings, aligning with prior research and showing that larger consumption gaps between donors and recipients lead to increased donations. Our findings point towards an inherent altruistic motivation in donation, where elevating the recipient’s well-being ultimately enhances the donor’s own utility. This reinforces the notion that consideration of the recipient’s financial hardship, as reflected by their consumption patterns, is crucial when making donation decisions. Shifting beyond traditional models, this study introduces a groundbreaking approach to financial donations. Our novel model factors in consumption levels of both the donor and recipient, along with the broader societal context, using utility maximization to unravel the intertwined decisions of consumption, donation, and savings. Real-world data validates our model, confirming known donation factors and revealing a key finding: larger disparities in consumption lead to increased giving, suggesting an altruistic drive where helping others boosts personal satisfaction.