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A Commercial Gift for Charity

Listed author(s):
  • Adriaan R. Soetevent

    (University of Groningen, the Netherlands)

  • Te Bao

    (Nanyang Technological University, Singapore)

  • Anouk L. Schippers

    (University of Groningen, the Netherlands)

Commercial firms are increasingly tying the sales of their products with donations to a charitable cause. Apart from a charitable motive, offering these charity-linked bundles could be a strategic instrument for firms to increase profits. We report the results of an experiment that investigates for different of these schemes whether they are able to increase profits net of the donation, and which donation scheme is most profitable. From a theoretical perspective, given rational agents, complete markets, and absent transaction cost, selling charity-linked bundles should not be profitable even when consumers are altruistic. We find however that sellers who donate 5% of their gross revenues or an equivalent absolute amount do attain significantly higher profits. No such effect is observed when the donation is limited to 2%. Offering charity-linked bundles considerably crowds out private donations by buyers.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 16-009/VII.

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Date of creation: 09 Feb 2016
Handle: RePEc:tin:wpaper:20160009
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  1. Crumpler, Heidi & Grossman, Philip J., 2008. "An experimental test of warm glow giving," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1011-1021, June.
  2. Bruttel, Lisa V., 2009. "Group dynamics in experimental studies--The Bertrand Paradox revisited," Journal of Economic Behavior & Organization, Elsevier, vol. 69(1), pages 51-63, January.
  3. Boone, Jan & Larraín Aylwin, María Jose & Müller, Wieland & Ray Chaudhuri, Amrita, 2012. "Bertrand competition with asymmetric costs: Experimental evidence," Economics Letters, Elsevier, vol. 117(1), pages 134-137.
  4. Douglas D. Davis & Charles A. Holt, 1992. "Introduction to Experimental Economics," Introductory Chapters,in: Experimental Economics Princeton University Press.
  5. Imas, Alex, 2014. "Working for the “warm glow”: On the benefits and limits of prosocial incentives," Journal of Public Economics, Elsevier, vol. 114(C), pages 14-18.
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