We conduct a laboratory experiment to test how information about charities’ qualities and its public visibility affect giving. We first show theoretically that a perceived increase in charities’ qualities represents a decrease in the price of charitable output, which could generate both an income and substitution effect on nominal giving. On the one hand positive news about charities’ qualities can increase giving, since donors realize that it is cheaper to generate charitable output. On the other hand positive news can reduce nominal giving because a smaller donation can generate an equal or higher level of charitable output. We then hypothesize and test that such negative income effect may be dominant among image-motivated donors whenever the quality of giving has a social signaling value: donors can “give less, but show that they give smart”. We find that when information is public, 34% of donors trade-off the quality and quantity of their donations. We show that these donors are relatively more motivated by social recognition, and strategically use positive public information to give less. The effect of public information is causal: when information about charities’ qualities is privately received, giving is always increasing in the quality of the news, and bad news has no effect on giving.
Bibliographical notePublished online: 9 January 2020
- Charitable giving
- Quality and giving
- Income and substitution effects
- Laboratory experiment