Warm Glow, Information, And Inefficient Charitable Giving

Null, C., (2011). Warm Glow, Information, And Inefficient Charitable Giving. Journal Of Public Economics, 95, 5-6, 455–465.

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Type of evidence: Lab-charity

Related tools: Give donor control

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Related critiques: Obvious contrast in within-subject treatments, Misunderstandings – participants likely not to understand complicated environment

Charity target: Poverty-Poor Country

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Paper summary


Discussion

Why donors give to multiple charities is a bit of a puzzle; given most people's small contributions, the effectiveness of each charity is not likely to diminish in their contribution; thus one charity is likely to be the most effective. People may be exactly indifferent between these, perceiving them to yield the same marginal benefit. If this were the case, lowering the price (increasing the matching rate) for one of these charities should get them to shift all their donation to that charity. However, participants in this experiment shift the donations only somewhat in response to this, which could be attributed to a form of “risk aversion” over the charity's impact, or a version of “warm glow” (with a diminishing marginal warm glow in the amount given to each charity). Introducing exogenous risks over matching rates … roughly 2/3 of those that choose to shift only imperfectly are not measured to be “risk averse”.

Her experiments were run both at Kiwanis/Rotary clubs and with “professional subjects” (university administrators?) at the Berkeley X-lab; the former strictly involved allocations *among* charities, in the latter case what was not given away could be kept. For the main reported treatments, participants made a series of decisions under different incentives (mostly on the same pages and thus simultaneously?). The “prize” was $100; in each session only one decision from one subject was chosen.

Null includes an experiment on “donor control” in the same paper, which is fairly distinct (we will report this separately).

Abstract

… revealed preference data from a lab experiment in which more than 200 real-world donors decide how to divide a gift between a charity they currently support and a set of international development charities. Most subjects simultaneously give to multiple development charities that have similar mission statements. This is true even when the social benefit of gifts, proxied by the matching rates received by the charities, are not equal. … Subjects forfeited social surplus (matching funds) equal to 25% of the value of their gifts. … Few subjects were willing to pay for information that could have enabled them to increase the social benefit of their gifts.
By exogenously varying the marginal social benefit of a gift and the risk associated with this marginal social benefit, my experimental design allows me to distinguish subjects who give to multiple charities because they are perfect substitutes from those who split their gifts ineficiently, and to identify the source of these ineficiencies as either being attributable to warm glow or risk aversion.
When they were told the distribution of matching rates but not how the rates would be assigned to charities, only 40% of subjects were willing to give up a small portion of their endowments in order to nd out which charity would receive the highest rate; the rest preferred to allocate their gifts without knowing what they would be worth to the charities.


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This paper has been added by David Reinstein

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