“Does One Contribution Come at the Expense of Another? Empirical Evidence on Substitution between Charitable Donations” (BEJEAP Advances, 2011):
This paper defines, discusses, and measures “expenditure substitution” in charitable giving. Motivated by a model of conditional demand, I consider the extent to which a “temporary shock” that increases an individual’s donation to one cause by a particular amount displaces her gifts to other charitable causes. I use the 2001-2007 waves of the PSID/COPPS, the first data set of its kind, to identify this. Households that give more to one type of charity tend to give more to others. However, many of the correlations between the residuals after fixed-effects regressions are negative and significant, particularly for larger donors and for certain categories of charitable giving. Given plausible econometric assumptions, the negative correlations are strong evidence of expenditure substitution. Overall, these results suggest heterogeneous motivations for giving: small givers may be mainly driven by temporary shocks and personal appeals while larger givers may have concave multi-charity warm-glow preferences.
“Efficient Consumer Altruism and Fair Trade” (with Joon Song, JEMS, 2012):
Consumers have shown willingness to pay a premium for products labeled as “Fair Trade” and to prefer retailers that are seen as more generous to their suppliers and employees. We define a fair trade product as a bundle of a consumption good and a donation. An altruistic consumer will only choose this bundle over its separate elements if the bundle is less expensive. Thus, for fair trade to be sustainable in a competitive equilibrium, an efficiency must be generated. In general, the first-best level of investment (to reduce the retailer’s cost or boosts quality) cannot be achieved when it is non-verifiable. However, the altruism of the consumer facilitates a more efficient contract: by paying the supplier more, the retailer can both extract more consumer surplus and increase the level of contracted investment, while preserving incentive compatibility. We provide empirical and anecdotal evidence for the assumptions and predictions of this model, focusing on the coffee industry.
“Decomposing Desert and Tangibility Effects in a Charitable Giving Experiment” (With Gerhard Riener, Experimental Economics, 2012):
Numerous papers have documented that subjects in VCM and dictator games behave differently (usually more generously) with laboratory money than with money they have “earned” in the lab or brought to the lab in cash. Using a charitable giving experiment, we decompose these “house money” effects into into two components: the “tangibility” of cash in hand relative to money (or ecu’s) promised on a computer screen, and the “Lockean desert” of earned money relative to random windfall gains. We find that both effects are important.
“Anonymous Rituals” (with David Hugh-Jones, JEBO, 2012):
We examine anonymous rituals: institutions which reveal participants’ behavior in the aggregate, while concealing individuals’ actions. Costly signaling allows conditional cooperators to signal their type, and thus identify and interact with one another. But the signaling cost must be high enough to prevent free-riders sending the signal and behaving selfishly later, and this may be prohibitively expensive. However, if the institution reveals only the average level of signaling in a group, free-riders can behave selfishly without being individually identified, and even a low cost signal can separate types. While individuals cannot be screened out, members can learn the group’s profile of types. Under specified conditions, this information gain leads to greater cooperation and hence increases expected welfare. Furthermore, if crowding is unimportant relative to the conditional cooperation term, anonymous rituals will be preferred to ones which reveal individuals’ behavior. We give examples of anonymous rituals, including religion, music and dance, voting, charitable donations, and military institutions.
“Exclude the Bad Actors or Learn About the Group” (with David Hugh-Jones):
In public goods environments, the threat to punish non-contributors may increase contributions. However, this threat may make players’ contributions less informative about their true social preferences. This lack of information may lead to lower contributions after the threat disappears, as we show in a two stage model with selfish and conditionally cooperative types. Under specified conditions welfare may be improved by committing not to punish or exclude. Our laboratory evidence supports this. Contributions under the threat of targeted punishment were less informative of subjects’ later choices than contributions made anonymously. Subjects also realized that these were less informative, and their incentivized predictions reflected this understanding. We find evidence of conditional cooperation driven by beliefs over others’ contributions. Overall, our Anonymous treatment led to lower first-stage contributions but significantly higher second-stage contributions than our Revealed treatment. Our model and evidence may help explain why anonymous contributions are often encouraged in the real world.
“Reputation and Influence in Charitable Giving: An Experiment” (with Gerhard Riener, Theory and Decision, 2011).
An individual may want to send a signal of her generosity in order to improve her own reputation. Alternately (or additionally) she may value the public good/charity itself and, believing that contribution levels are strategic complements, give more in order to influence others to give more. We implement a series of laboratory experiments that allow us to separately estimate the impact of these two “social effects.’’
“Losing Face” (With Thomas Gall [Southampton]):
When Al makes an offer to Betty that Betty observes and rejects, Al may “lose face”. This loss of face (LoF) may cost Al utility, either directly or through reputation effects. This can lead to fewer offers and inefficiency in the context of bilateral matching problems, e.g., the marriage market, research partnering, and international negotiations. We offer a simple model with asymmetric information, a continuous signal of an individual’s binary type, and a linear marriage production function. We add a primal LoF term which is distinct from standard search frictions. We characterize the stable equilibria, comparing the benchmark without LoF to a case where only one side is vulnerable to LoF, and present comparative statics. A small amount of LoF has no effect on low types’ behavior, but, considering stable interior equilibria only, it will make high types on both sides more selective. A stronger LoF term drives high types out of the market, and makes low types reverse snobs, further reducing welfare. LoF also makes rejecting strictly preferred to being rejected, making the “high types reject” equilibrium stable. We can eliminate the effects of LoF by letting the vulnerable side move second, or setting up a “Conditionally Anonymous Environment” that only reveals when both parties say yes. We motivate our model with a variety of empirical examples, and we suggest policy and managerial implications.
“Substitution Among Charitable Contributions: An Experimental Study”.
The question of whether charitable gifts are complements or substitutes, and the extent to which charities are rivals, is unresolved in the economic literature. The answer is relevant to charities and policymakers, as well as to economic models of altruism. Identifying this using observational data is difficult: there is a lack of independent price variation and few observable shocks that can be claimed to specifically affect giving to one charity. I implement such variation in the laboratory: in a series of sequential stages subjects may donate to a varying set of one to four charities, with prices (defined as the inverse of one minus the rate at which I supplement contributions) and promotional information (about a charity) that varies by stage, subject, and charity. All of the specific shocks strongly increase giving to the targeted charities, and this leads to decreased giving to the charities not targeted; I interpret this as a form of crowding-out. In standard economic terms, subjects exhibit price-elastic demand and large and negative cross-price elasticities between charities. The cross-price elasticities are particularly large when the charities serve similar goals.
Listen to the market, hear the best policy decision, but don’t always choose it. (With Joon Song)
Policymakers must often decide whether to pursue a policy that has uncertain benets. The response of asset markets to proposed policy changes can be a valuable source of information for policy-setting. However, policymakers must take into account that an informed trader may anticipate this and protably manipulate the market. We show that it is optimal for policymakers to listen to asset markets, but they must commit (e.g., through \political capital”) to sometimes pursuing a policy even when the expected welfare effects are negative. Surprisingly, allowing traders to short-sell can make it easier for policymakers to induce truth-telling actions
Giving and Probability (with Christian Kellner, Gerhard Riener, and Michael Sanders):
When and how should a fundraiser ask for a donation from someone facing an uncertain “bonus” income?A standard model of expected utility over outcomes predicts that her before choice – her ex-ante commitment conditional on her income – will be the same as her choice after the income has been revealed. Deciding “if you win, how much will you donate?” involves a commitment (i) over a donation for a state of the world that may not be realized and (ii) over uncertain income. Models involving reference-dependent utility, tangibility, and self-signaling predict more giving before, while theories of affect predict more giving after. In our online field experiment at a UK university, as well as in our laboratory experiments in Germany, charitable giving was significantly larger in the Before treatment than in the After treatment for male subjects, with a significant gender differential. Lab treatments isolated distinct mechanisms: for men, donations were higher in all treatments where the donation’s collection was uncertain, whether or not the income was known. This supports a (self)-signaling explanation: commitments realized with a lower probability must involve larger amounts to have the same signaling power. Our results are directly relevant to fundraising and volunteer-recruitment strategies, and offer further evidence that we need to exercise caution in applying expected utility theory in the presence of social preferences.