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Testing Motives for Charitable Giving: A Revealed-Preference Methodology with Experimental Evidence

  • Rahul Deb
  • Robert S. Gazzale
  • Matthew J. Kotchen

A large economics literature seeks to understand the reasons why individuals make charitable contributions. Fundamental features of most models of charitable giving are the inclusion of externalities induced by other agents and the Lancasterian characteristics approach to specifying utility functions. This paper develops a general, revealed-preference methodology for testing a variety of preference structures that allow for both externalities and characteristics. The tests are simple linear programs that are transparent, computationally efficient, and straightforward to implement. We show how the technique applies to standard models of privately provided public goods and novel models that account for social comparisons based on relative consumption and donations among individuals. We also conduct an original experiment that enables nonparametric tests of many models on a single data set. The results provide the first revealed-preference evidence on the importance of social comparisons when individuals make charitable contributions. Models that include preferences for either relative consumption or donations yield greater explanatory power than the standard model of impure altruism.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18029.

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Date of creation: May 2012
Date of revision:
Publication status: published as Deb, Rahul & Gazzale, Robert S. & Kotchen, Matthew J., 2014. "Testing motives for charitable giving: A revealed-preference methodology with experimental evidence," Journal of Public Economics, Elsevier, vol. 120(C), pages 181-192.
Handle: RePEc:nbr:nberwo:18029
Note: EEE PE
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  1. Cornes,Richard & Sandler,Todd, 1996. "The Theory of Externalities, Public Goods, and Club Goods," Cambridge Books, Cambridge University Press, number 9780521477185, September.
  2. Michael J. Boskin & Eytan Sheshinski, 1978. "Optimal Redistributive Taxation When Individual Welfare Depends upon Relative Income," The Quarterly Journal of Economics, Oxford University Press, vol. 92(4), pages 589-601.
  3. Aronsson, Thomas & Johansson-Stenman, Olof, 2008. "When the Joneses' consumption hurts: Optimal public good provision and nonlinear income taxation," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 986-997, June.
  4. Friedman,Daniel & Sunder,Shyam, 1994. "Experimental Methods," Cambridge Books, Cambridge University Press, number 9780521456821, September.
  5. Andrés Carvajal, 2010. "The testable implications of competitive equilibrium in economies with externalities," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 45(1), pages 349-378, October.
  6. Bronars, Stephen G, 1987. "The Power of Nonparametric Tests of Preference Maximization [The Nonparametric Approach to Demand Analysis]," Econometrica, Econometric Society, vol. 55(3), pages 693-98, May.
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