Charitable Giving and Optimal Public Policy in a Competitive Equilibrium with Multiple Equilibria
In a competitive-equilibrium analysis of giving to charity, we show that strategic complementarity between individual giving and aggregate giving can lead to multiple equilibria. This provides a possible explanation for observed heterogeneity in giving. It is possible, but not necessary, that at a low equilibrium in giving (LE), an increase in subsidy reduces giving (perverse comparative statics) while at a high equilibrium (HE) the comparative statics are normal (subsidies promote giving). The perverse comparative statics at LE preclude using subsidies to move the economy to HE. We show how temporary direct government grants can engineer a permanent move from LE to HE. Once HE is established, the optimal mix of private and public giving is determined using a welfare analysis. We show that the Nash non-cooperative outcome is virtually identical to the competitive-equilibrium, even for relatively small numbers of givers. The competitive-equilibrium approach is more tractable and plausible, and more general because it does not rely on a symmetric equilibrium. We also show how our results are applicable to redistributive and public good contexts.
|Date of creation:||Mar 2010|
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- Jan Potters & Martin Sefton & Lise Vesterlund, 2007.
"Leading-by-example and signaling in voluntary contribution games: an experimental study,"
Springer;Society for the Advancement of Economic Theory (SAET), vol. 33(1), pages 169-182, October.
- Potters, J.J.M. & Sefton, M. & Vesterlund, L., 2007. "Leading-by-example and signaling in voluntary contribution games : An experimental study," Other publications TiSEM 1ea4e6c8-3071-46d8-a29f-0, Tilburg University, School of Economics and Management.
- Dean Karlan & John A. List, 2007. "Does Price Matter in Charitable Giving? Evidence from a Large-Scale Natural Field Experiment," American Economic Review, American Economic Association, vol. 97(5), pages 1774-1793, December.
- Dean Karlan & John List, 2006. "Does price matter in charitable giving? Evidence from a large-scale natural field experiment," Natural Field Experiments 00279, The Field Experiments Website.
- Dean Karlan & John A. List, 2006. "Does Price Matter in Charitable Giving? Evidence From a Large-Scale Natural Field Experiment," NBER Working Papers 12338, National Bureau of Economic Research, Inc.
- Dean Karlan & John A. List, 2006. "Does Price Matter in Charitable Giving? Evidence from a Large-Scale Natural Field Experiment," Working Papers 1, The Field Experiments Website.
- Karlan, Dean & List, John, 2006. "Does Price Matter in Charitable Giving? Evidence from a Large-Scale Natural Field Experiment," Working Papers 13, Yale University, Department of Economics.
- Thomas Garrett & Russell Rhine, 2010. "Government growth and private contributions to charity," Public Choice, Springer, vol. 143(1), pages 103-120, April. Full references (including those not matched with items on IDEAS)
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