(Un)Informed Charitable Giving

Silvana Krasteva and Huseyin Yildirim

No 11-26, Working Papers from Duke University, Department of Economics

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.

Keywords: charitable giving; search cost; value of information; crowding-out; warm-glow (search for similar items in EconPapers)
JEL-codes: D82 D83 H00 H41 (search for similar items in EconPapers)
Pages: 31
Date: 2011
New Economics Papers: this item is included in nep-cta, nep-mic and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:duk:dukeec:11-26

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