Working Knowledge
Business Research for Business Leaders
19 Jul 2012Working Paper Summaries

Charitable Giving When Altruism and Similarity are Linked

by Julio J. Rotemberg
This paper presents a model to help explain several aspects of charitable giving. First, individuals do not appear to reduce their contributions to a charity significantly when they learn that the government or other individuals have increased the funds that they devote to the charity's beneficiaries. Indeed, sometimes people increase their contributions when they hear that others have contributed more. Second, there are often several distinct charities that contribute to the same beneficiaries, and these charities frequently differ by the donor population to whom they target their appeal. Lastly, the extent to which individuals contribute to charity differs greatly, even among countries that appear otherwise quite similar. Rotemberg's model shows that two assumptions grounded in evidence from psychology are helpful in explaining these regularities. Specifically, the combination of (1) letting altruism be larger towards like-minded people and (2) having self-esteem depend on the number of people that agree with oneself is consistent with small reductions in one's own giving in response to larger giving by others. Key concepts include:
  • Two human tendencies can help explain patterns of charitable giving.
  • The first tendency is that people are happier when they learn that there is more agreement with their point of view.
  • The second tendency is that people have warmer feelings towards, and are more willing to help, individuals whom they perceive as sharing their beliefs or, more generally, individuals who are more similar to themselves.
  • There are parallels between voting and charitable giving. Both charitable contributions and voting involve the expression of beliefs about how resources ought to be distributed to others. However, democratic voting systems give one vote to each person regardless of income. Charitable contributions, on the other hand, do vary by income.
  • Particularly in the case of large contributions, many contributions are visible to others. This paper's emphasis, by contrast, is on contributions whose total is visible to others but whose constituent individual contributions are not. Examples of anonymous contributions include those made via SMS messages.

Author Abstract

This paper presents a model in which anonymous charitable donations are rationalized by two human tendencies drawn from the psychology literature. The first is people's disproportionate disposition to help those they agree with while the second is the dependence of peoples' self-esteem on the extent to which they perceive that others agree with them. Government spending crowds out the charity that ensues from these forces only modestly. Moreover, people's donations tend to rise when others donate. In some equilibria of the model, poor people give little because they expect donations to come mainly from richer individuals. In others, donations by poor individuals constitute a large fraction of donations and this raises the incentive for poor people to donate. The model predicts that, under some circumstances, charities with identical objectives can differ by obtaining funds from distinct donor groups. The model then provides an interpretation for situations in which the number of charities rises while total donations are stagnant.

Paper Information

Find Related Articles

Sign up for our weekly newsletter

Interested in improving your business? Learn about fresh research and ideas from Harvard Business School faculty.