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All That Glows Is Not Warm Glow: Private Contributions and Social Recognition

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  • Ratna K Shrestha

    (Department of Economics, Memorial University of Newfoundland)

  • Kwang Soo Cheung

    (Department of Economics, University of Hawaii at Manoa)

Abstract

By considering social status-seeking consumers who derive utility from the social recognition of their contributions to public goods, we investigate the efficiency and equity aspects of the equilibrium supply of public goods. Our model departs from the previous studies, such as Andreoni's (1989, 1990) warm-glow model, in that an individual's utility is affected only to the extent that his contribution is socially recognized and hence his social status enhanced. Specifically, his utility is represented by a function not only of his consumption of private and public goods but also his social status, which is then a function of the size of his relative contribution and the observability defined as the extent to which his relative contribution is publicly observed. This type of utility function is supported by an experimental result that we are mostly egoistic rather than altruistic in balancing our welfare with that of others (Offerman, Sonnemans and Schram, 1996), and an empirical finding that anonymous donations are far less popular (Glazer and Konrad, 1996). Our model obtains a unique, stable Nash equilibrium in which the supply of public goods critically depends on the distribution of income and the observability parameter. Interestingly, an increase (decrease) in the observability for income losers (gainers), for a given income redistribution, leads to an increase in the supply of public goods. In the absence of such income redistribution, the increase in the observability of the relative contribution of low-income egoists may force them to bankruptcy. We show that grouping consumers by income levels and allowing them to play the Nash game only within their respective groups may prevent this potential problem without compromising the total supply of public goods. We also discuss the implications of our analysis in the context of global pollution control and community-based charity.

Suggested Citation

  • Ratna K Shrestha & Kwang Soo Cheung, 2001. "All That Glows Is Not Warm Glow: Private Contributions and Social Recognition," Working Papers 200101, University of Hawaii at Manoa, Department of Economics.
  • Handle: RePEc:hai:wpaper:200101
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    File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_01-1.pdf
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    References listed on IDEAS

    as
    1. Harbaugh, William T., 1998. "What do donations buy?: A model of philanthropy based on prestige and warm glow," Journal of Public Economics, Elsevier, vol. 67(2), pages 269-284, February.
    2. Roberts, Russell D, 1987. "Financing Public Goods," Journal of Political Economy, University of Chicago Press, vol. 95(2), pages 420-437, April.
    3. Warr, Peter G., 1983. "The private provision of a public good is independent of the distribution of income," Economics Letters, Elsevier, vol. 13(2-3), pages 207-211.
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    6. Andreoni, James, 1989. "Giving with Impure Altruism: Applications to Charity and Ricardian Equivalence," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1447-1458, December.
    7. Andreoni, James, 1990. "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving?," Economic Journal, Royal Economic Society, vol. 100(401), pages 464-477, June.
    8. James Andreoni, 1998. "Toward a Theory of Charitable Fund-Raising," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1186-1213, December.
    9. Roberts, Russell D, 1984. "A Positive Model of Private Charity and Public Transfers," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 136-148, February.
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    More about this item

    Keywords

    Public goods; Private provision; Social status;

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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