Why people give

David Leonhardt an article in the New York Times on What Makes People Give? The article looks, in part, at the work of economists John List and Dean Karlan on trying to work out, What makes people give their money away? What Karlan and List did was work with a little known Liberal (US meaning) group to help them raise money.

Late in 2004, List and Karlan started working on different solicitation letters for the liberal group. The letters were similar except for the part that mentioned (or didn’t mention) a match. In one letter, sent to the control group, there was no match. Another letter said that a donor had agreed to match any gift, dollar for dollar. In a third, the match was increased to two to one, and in a fourth it was three to one.

The idea here is simple enough. The effective cost of giving is lowered by a marching gift.

Without a match, you would have to spend $400 to make your favorite charity $400 richer. With a three-to-one match in place, it would cost you only $100 to add $400 to the charity’s coffers.

What happened?

When Karlan and List got their results, however, they realized that the conventional wisdom about matches was only partly right. The existence of a matching gift did very much matter. In their experiment, 2.2 percent of people who received the match offer made a donation, compared with only 1.8 percent of the control group. That may not seem like a big difference, but it is — more than a 20 percent gap between the two response rates, which is certainly large enough to justify making the effort to solicit a hefty matching gift.

But the size of the match in the experiment didn’t have any effect on giving. Donors who received the offer of a one-to-one match gave just as often, and just as much, as those responding to the three-to-one offer. That was surprising, because a larger match is effectively a deeper discount on a person’s gift. Yet in this case, the deeper discount didn’t make an impact. It was as if Starbucks had cut the price of a latte to $2 and sales didn’t increase.

But there is still the question, Why do people give?

Is it really to make the world a better place, to give back to the community as a token of gratitude? Or is giving instead about something less grand, like seeing your name on a building, responding to peer pressure or simply feeling good about yourself? To put it bluntly, is charitable giving a high-minded form of consumption?

Economist James Andreoni argues that the internal motives for giving are important. In his view there is a "warm glow" effect - people don't give money just to save the kiwi or whatever; they're also giving money to feel the glow that comes with being the kind of person who's helping to save the kiwi. The Karlan and List experiment suggests that Andreoni's idea is correct.

One result of the the warm-glow theory is that philanthropy may not be a zero-sum game. If we were strictly rational, the announcement of a big donation might lead us to give less on the grounds that the charity no longer needs our money as much. But thanks to the warm glow a large donation may make us more likely to donate. We can then have the sense that we're joining forces with someone else and have become part of a larger cause.

(HT: Greg Mankiw)