Does the introduction of ratings reduce giving? Evidence from charities

Laura Grant

Economic Inquiry, 2021, vol. 59, issue 3, 978-995

Abstract: The largest charity‐ratings organization evaluates thousands of charities with combined annual donations of $100 billion. Because charities' initial rating occurs at different times, in random order, I can estimate how the introduction of the ratings affects giving. Donations decrease by 5%–9%, on average. The pattern is intuitive: Donations to highest‐rated (4‐star) charities are stable. Yet for each consecutive star lower, donations decrease, with 1‐star charities losing 12%–14%. I also impute each charity's ratings for years before being rated determine the effect of prior information. Annual losses for the rated charities are approximately $2 billion. Several reasons for the losses are discussed including salience of information, donor expectations, and charity visibility.

Date: 2021
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