Charitable Giving and Fundraising

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Ninety percent of all U.S.households contribute to charities, with average contributions in excess of $1,500 per year. It is easy to see that charitable contributions constitute an important component of the American economy. Furthermore current public policy makes it clear that we increasingly will be relying on such donations. It is therefore important that we understand what triggers giving. However, charitable giving has long posed a challenge for standard models of economic behavior. Consultants and nonprofit managers recommend many methods to encourage donations, but few if any of these methods are actually tested against alternatives.This project will develop a new model of charitable donations to better explain how and why people give to charity. In particular, the model includes not just donors and a charity, but includes multiple charities and fundraisers that serve as intermediaries between people and charities. The goal is to improve our understanding of an important kind of cooperative behavior and the institutions that support such cooperation. Broader implications of this research will benefit charities by giving them better information about the best fundraising methods.The three parts of this project will examine fundraising behavior, multiple charities, and cooperative behavior. The common assumption of models of charitable giving is that donors make their contributions simultaneously, with the charity playing a purely passive role. Typically, however, campaigns are guided and directed by fundraisers - often very active ones. The work in the first part of the proposal extends the models of giving to account for this fact. In particular, the work will consider whether herding or a concern for status may be reasons why contributions are announced. Another frequently used strategy is for the fundraiser to set thresholds or goals for the combined contributions to the charity, we will also investigate the implications of such a strategy. The second part of the proposal relaxes the standard assumption that there only is one charity. Allowing for multiple charities I first determine if as predicted aggregate contributions increase when a heterogeneous set of charities are available, and then whether free-riding behavior may be more or less prominent when donors contribute to different and overlapping public goods. Finally, the work in the third part of the proposal studies cooperative behavior. In particular we examine the extent to which learning, reciprocity, and end-game effects can explain the observation that cooperation decreases with time. We also examine what kinds of institutions do the most to encourage cooperation.