A Theory of Charitable Fund-Raising with Costly Solicitations
We present a theory of charitable fund-raising in which it is costly to solicit donors. We fully characterize the optimal solicitation strategy that maximizes donations net of fundraising costs. The optimal strategy dictates that the fund-raiser target only those individuals whose equilibrium contributions exceed their solicitation costs. We show that as the income inequality increases, so does the level of the public good, despite a non-monotonic fund-raising effort. This implies that costly fund-raising can provide a novel explanation for the non-neutrality of income redistributions and government grants often found in empirical studies. We also show that in large economies, only the "most willing" donors are solicited; and the average donation converges to the solicitation cost of these donors, which is strictly positive.
|Date of creation:||2011|
|Date of revision:|
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