Altruism and Institutions: Theoretical, Econometric and Experimental Studies

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One of the most significant contributions of experimental economics over the past decade is bringing a greater awareness of the altruism, fairness, and trust to economic theorists and policy makers. It now seems clear to most economists that individual altruism is both real and important for understanding many parts of the economic world around us. This project will study altruism from three different directions: Theory, econometric policy analysis, and laboratory experiments. The theoretical model will build on decades of research on givers to charity by combining that with new models of the strategic choices of charitable institutions. The objective is to study non-profit markets using the insights from game theory that were developed to study for-profit markets. In particular, what are the strategic mechanisms behind the common fund-raising practices of charities? The model captures the stylized fact that new charities tend to be "seeded'" by disproportionately large donors, or by government or foundations grants. The model shows that these large early donations can provide information and confidence to smaller donors, and this in turn allows the charity to gain a firm footing. The model illustrates the importance of foundation grants and government granting agencies in seeding new private non-profits that could not have had a successful start without the these seed grants. The second section uses tax-return data from non-profit arts and social service organizations to look at the actual effect of government grants on giving and fund-raising. We hope to confirm they hypotheses of the theoretical section, and to show how behavioral responses by non-profit firms can either dampen or magnify the impact of government grants. Our results will, we expect, have important consequences for both policy makers and fund-raisers. The final section outlines a series of experimental research projects. These controlled laboratory studies will examine various aspects of informal social institutions and formal "fund-raising" institutions. The objective is to see how individuals' natural interests in being fair, altruistic and cooperative can be captured and encouraged by simple institutional designs. We hope to discover some basic relationships between how people's interactions are structured and the amount of natural altruism that can be expressed. Our ultimate goal is to show that simple remedies, rather than complicated mechanisms, can have a big impact on harnessing the power of individual altruism.