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Rational Inattention to Subsidies for Charitable Contributions

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  • Kimberly Scharf
  • Sarah Smith

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Abstract

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.

Suggested Citation

  • Kimberly Scharf & Sarah Smith, 2011. "Rational Inattention to Subsidies for Charitable Contributions," The Centre for Market and Public Organisation 11/269, Department of Economics, University of Bristol, UK.
  • Handle: RePEc:bri:cmpowp:11/269
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    References listed on IDEAS

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    Cited by:

    1. Sarah Smith, 2012. "Increasing Charitable Giving: What Can We Learn from Economics?," Fiscal Studies, Institute for Fiscal Studies, vol. 33(4), pages 449-466, December.

    More about this item

    Keywords

    Tax salience; rational inattention; charitable giving;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • D0 - Microeconomics - - General
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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