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(Un)Informed Charitable Giving

Author

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  • Silvana Krasteva
  • Huseyin Yildirim

Abstract

Evidence suggests that donors have little demand for information before giving to charity. To understand this behavior and its policy implications, we present a model in which each individual can acquire costly information about her true value of charity. We observe that an individual who considers giving less is less likely to become informed; and indeed, an uninformed donor is, on average, less generous than an informed one. This implies that since the free-rider problem in giving worsens in a larger population, the percentage of informed givers becomes vanishingly small, leaving the total expected donations strictly below its highest level to be reached by a fully informed population. We show that while a direct government grant to the charity causes severe crowding-out by discouraging information acquisition, a matching grant increases donations by encouraging it. We further show that a “warm-glow” motive for giving does not necessarily weaken incentives to be informed, and that a (first-order) stochastic increase in true values for charity may actually decrease donations.

Suggested Citation

  • Silvana Krasteva & Huseyin Yildirim, 2011. "(Un)Informed Charitable Giving," Working Papers 11-26, Duke University, Department of Economics.
  • Handle: RePEc:duk:dukeec:11-26
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    More about this item

    Keywords

    charitable giving; search cost; value of information; crowding-out; warm-glow;

    JEL classification:

    • H00 - Public Economics - - General - - - General
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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