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Rational Inattention to Subsidies for Charitable Contributions

  • Kimberly Scharf
  • Sarah Smith

    ()

Evidence suggests that individuals fail to process all relevant attributes when making decisions. Recent literature has mainly focused on shrouded attributes. Here we present a simple model where agents rationally choose not to process attributes even when they are not shrouded, and we investigate its predictions for the case of subsidies for charitable donations. These are offered as rebates or matches. Both lower the price of giving, but, crucially, with different implications for rational non-processing choices. Survey and experimental evidence on donation responses to equivalent changes in the match and the rebate is consistent with our model of rational inattention.

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File URL: http://www.bristol.ac.uk/cmpo/publications/papers/2011/wp269.pdf
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Paper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 11/269.

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Length: 18 pages
Date of creation: Jul 2011
Date of revision:
Handle: RePEc:bri:cmpowp:11/269
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