Working Paper: CEPR ID: DP9749
Authors: Kimberley Scharf
Abstract: We show that warm-glow motives in provision by competing suppliers can lead to inefficient charity selection. In these situations, discretionary donor choices can promote efficient charity selection even when provision outcomes are non-verifiable. Government funding arrangements, on the other hand, face verification constraints that make them less flexible relative to private donations. Switching from direct grants to government subsidies for private donations can thus produce a positive pro-competitive effect on charity selection, raising the value of charity provision per dollar of funding.
Keywords: Competition in the nonprofit sector; Private provision of public goods; Tax incentives for giving; Warm glow
JEL Codes: H2; H3; H4; L3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| warmglow motives (D64) | inefficient charity selection (D64) |
| inefficient charity selection (D64) | suboptimal allocation of resources among charities (D64) |
| discretionary donor choices (D64) | better charity selection based on observed performance (D64) |
| government funding (H59) | less effective charity selection (D64) |
| tax incentives for private giving (H24) | improved charity selection and performance (D64) |
| warmglow motives (D64) | reduced total output (E23) |
| shift towards private funding mechanisms (I22) | enhanced overall charity provision efficiency (D64) |