Working Paper: NBER ID: w4868
Authors: Louis Kaplow
Abstract: Altruistically motivated gifts involve a species of consumption externality. Donors obtain an altruistic benefit from the effect of their gifts on donees' utility but do not take into account that the benefit to donees is itself relevant to social welfare. The level of gift-giving thus will be lower than is optimal. A subsidy can correct this problem, while compulsory transfers (assuming the state lacks information about who is altruistic) and bargaining between donors and donees cannot. The rationale for subsidizing gifts offered here does not depend on whether the donee's activity is a public good (as with gifts for medical research) or whether the transfer tends to equalize the wealth of donors and donees -- factors emphasized in the existing literature on the subject.
Keywords: altruism; gifts; subsidies; social welfare; externalities
JEL Codes: H4; D64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Altruistically motivated gifts (D64) | consumption externality (D62) |
| Subsidy (H20) | level of gift-giving (donor's utility) (D64) |
| level of gift-giving (donor's utility) (D64) | social welfare (donee's utility) (D64) |
| Subsidy (H20) | social welfare (donee's utility) (D64) |
| Altruism level of donors (D64) | optimal subsidy rate (H21) |