Is charity a major source of deadweight loss?

by on February 24, 2012 at 5:55 am in Economics | Permalink

From the excellent Stefano DellaVigna, John List, and Ulrike Malmendier:

Every year, 90% of Americans give money to charities. Is such generosity necessarily welfare enhancing for the giver? We present a theoretical framework that distinguishes two types of motivation: individuals like to give, for example, due to altruism or warm glow, and individuals would rather not give but dislike saying no, for example, due to social pressure. We design a door-to-door fund-raiser in which some households are informed about the exact time of solicitation with a flyer on their doorknobs. Thus, they can seek or avoid the fund-raiser. We find that the flyer reduces the share of households opening the door by 9% to 25% and, if the flyer allows checking a Do Not Disturb box, reduces giving by 28% to 42%. The latter decrease is concentrated among donations smaller than $10. These findings suggest that social pressure is an important determinant of door-to-door giving. Combining data from this and a complementary field experiment, we structurally estimate the model. The estimated social pressure cost of saying no to a solicitor is $3.80 for an in-state charity and $1.40 for an out-of-state charity. Our welfare calculations suggest that our door-to-door fund-raising campaigns on average lower the utility of the potential donors.

Do read the whole thing, superb research design.  What percentage of human activity might be well-described by a similar hypothesis?

Here is my 2006 NYT column on John List’s work on charity, he is one of the leading economists today.

Doc Merlin February 24, 2012 at 6:15 am

is charity less of a deadweight loss than government?

Andrew' February 24, 2012 at 8:51 am

Most business ideas are not profitable (provide zero net utility). These are the things that have to justify their existence to customers.

Dan Egan February 24, 2012 at 7:16 am

Change the title to “annoyance based charity solicitation”, and I’d agree. I’d say the problem is being bothered for charity, rather than giving to charity itself. I regularly give to a few established charities I’m familiar with, and this is done automatically in some cases. It’s not a bother at all.

On the other hand, I really dislike it when people stop me in the street or at home asking for charity.
1. There are far too many scams & hustles that rely on it. Cash payments on hand are just sketchy.
2. Even if it’s legit, I don’t have time/effort on the street to determine if it’s worth giving to that charity.
3. The solicitors are paid professionals sometimes, and I don’t want to encourage that behavior. I’ll sometimes give to the charity, but never to the person on the street.

The authors need to compare automatic/unsolicited charity as opposed to solicited. The deadweight loss comes from being publically bothered and inconvenienced.

Bill February 24, 2012 at 7:22 am

Whew!

After reading this, I won’t feel so obligated to support this website by buying books linked on your website to Amazon.

I now understand.

Andrew' February 24, 2012 at 8:45 am

Maybe there’s a difference between voluntary and charity.

Bill February 24, 2012 at 12:20 pm

If you read the post, every contribution that the people made was voluntary, just as any decision to purchase a book through this website following a favorable review is voluntary.

I will say, though, that a website nudge is different than a person standing on your front step.

enrique February 24, 2012 at 7:27 am

John List is awesome. His “negative” dictator game (in which the dictator may not only refuse to share any amount with the other player, but may also take money away from him or her) is pure genius !

tt February 24, 2012 at 2:44 pm

Yes, except that the idea was published before him (or at least was simultaneously conceieved) by Bardsey in a lesser know journal that thus gets less attention

Rahul February 24, 2012 at 7:28 am

Someone should repeat the study with fliers saying we are coming over to hand you free cookies. I suspect people still won’t open up.

The problem isn’t charity; it is the annoyance of unsolicited, hard-to-verify, often pushy, strangers showing up at your door on a weekend.

Doc Merlin February 24, 2012 at 7:46 am

+1

Andrew' February 24, 2012 at 8:48 am

A home invader came to my in-laws masquerading as a salesman and was later caught in someone’s house down the street. Where I live it’s even worse, if some salesman puts his foot in my door, he risks being shot if I get nervous. Some of you guys don’t understand how parts of America (I was shocked as well) go third world fast.

Rahul February 24, 2012 at 8:54 am

On a tangential note, I’m skeptical that home-invasions are more of a third-world phenomenon. Sure there’s malaria,tuberculosis and all sorts of vermin in Africa and Asia, but not that many masked robbers really.

Andrew' February 24, 2012 at 9:09 am

I’m referring to the whole package, such if you aren’t physically their watching your property, then “property” has no meaning and the fact that there is no police presence, I suspect because noone has money for drugs.

Enigmatic T February 25, 2012 at 2:34 am

This. Repeat the experiment with a control. A note is posted advising exactly when somebody will show up selling books. I’m betting the number of doors opened and books sold will fall fast too.

Would we conclude from this that market exchange on average lowers the utility of buyers and the free market system creates deadweight loss?

-
Even more radical alternate hypothesis: salesman and charity fundraisers are good at helping consumers discover objectives they were hitherto unaware they wished to pursue. One has no desire to give to a charity or purchase a book until they (involuntarily) discover more information about the range of work performed or books sold. There’s at least some truth to that: it’s why marketing that doesn’t involve salespeople also (sometimes) works.

MattJ February 24, 2012 at 8:39 am

I gave about 8% of my gross income to charity last year, almost all of it to one specific charity I researched and selected for my primary vehicle for giving. Most of the rest went to a second charity on whose board I sit.

My charitable giving is well-researched and I’m not giving any money or time to people who show up at my door unsolicited. They can pound sand.

Stan February 24, 2012 at 8:42 am

Hold it. Isn’t is possible that some people get a warmer glow from giving to a door-to-door solicitor, a real person, than to an impersonal website or mail source? There is someone right in your doorway giving you pleasant, immediate feedback. The methodology described doesn’t estimate these increased benefits and so overstates the costs of door-to-door solicitation. Indeed, the costs may be negative.

liberalarts February 24, 2012 at 9:01 am

I hate door to door solicitation (except for kids less than 10 years old), but Stan’s comment is a very interesting one.

Andrew' February 24, 2012 at 9:14 am

This is what I’m referring to above. Where I live, if you don’t know that you don’t do that, then something else is wrong with you.

Non Papa February 24, 2012 at 10:00 am

This is an interesting point, but the fact that the flyers were correlated with fewer doors opened and less giving suggests that the researchers at least got the sign right. I have to imagine the benefits you’re describing would be pretty small in the aggregate; it’s hard to picture someone saying “Man, I got the greatest warm/fuzzy feeling from this door-to-door solicitor today…”

Thomas February 24, 2012 at 9:00 am

I sometimes end up in restaurants that the larger group has chosen and that I’m not particularly fond of. If I’d been told in advance we were going to have bad Chinese food, I’d probably have tried to avoid the conversation leading to that.

el February 24, 2012 at 11:10 am

I have honestly had to stage trip planning coups to avoid this exact phenomenon. Letting a large group default to the first restaurant available is almost always a recipe for culinary disaster (I will never get over the Chinese New Years dinner I had with coworkers where I was served spaghetti in a ketchup-based sauce).

jh February 24, 2012 at 9:14 am
Rahul February 24, 2012 at 9:23 am

If your hypothesis is right shouldn’t more people open doors and donate when the visits are pre-announced?

Tim February 24, 2012 at 9:38 am

I think those who discount this should look at the main recipient of “charitable” giving in the US – churches. Would they have the same giving without the social pressure of sitting next to someone as the collection plate is passed? It would definitely be interesting to compare giving from church members who watch services via streaming video and those who attend in person.

Non Papa February 24, 2012 at 10:04 am

I guess it depends on how much of church giving happens through collection plates or other socially monitored contexts. I am not a member of any church, but it wouldn’t surprise me if most donations happened outside of public settings like a service.

MattJ February 24, 2012 at 10:15 am

My impression is that the majority of church donations come from the core of churchgoers who actually tithe – that is, give 10% of their income to the church, and generally do so outside the collection plate process, or with a folded check dropped into the plate. The cash money dropped into the collection plates is peanuts compared to that.

Robert February 24, 2012 at 12:30 pm

I would just like to confirm this. The envelope is almost universal for donations over $20. But most people don’t look around anyway…

I’m not sure how it varies among denominations, but in the (Western rite) Catholic mass the collection usually happens during the “Presentation of the Gifts” part of the liturgy which involves praying and singing that keeps you too occupied to be analyzing who is donating and/or how much. Also, it is never a plate passed around but a basket that a designated usher is carrying. The discrete way to put your money in is not to pull a $20 out of your pocket, waive it in the air above your head, and then slowly and theatrically put it in the basket, but rather the discrete way to do it is hold the money covered by your fist, lower your hand below the rim of the basket so that when you let go of the money no one could see what you were giving. If you go to a mass you will see most people doing this quietly and quickly. Also, the usher will only approach you if you make very deliberate eye contact with them.

Rahul February 24, 2012 at 2:06 pm

So, does this mean the Church frowns upon using social pressure to encourage donations?

dead serious February 24, 2012 at 2:53 pm

I’m guessing the signaling with religious giving isn’t so much with neighbors as much as it is with the big guy in the sky.

Robert February 25, 2012 at 12:59 am

Yes exactly Rahul! The Lord taught many lessons about that, such as “be so discreet in your charity that even your left hand won’t know what your right hand is doing”!

Nick February 24, 2012 at 10:31 am

I don’t think it makes sense to label this as a form of deadweight loss. Some people likely derive utility from conforming with social norms. Or maybe my warm glow is derived not from giving money to a specific cause per se but seeing the happiness on someone’s face when I give to a cause they care about greatly. Hence no loss.

Yancey Ward February 24, 2012 at 10:49 am

A good design, but I question the meaningfulness of the results. You could arrange to give me something rather than the reverse, and I still wouldn’t want you on my stoop disturbing me, and I doubt I am all that unique in this regard.

Bill February 24, 2012 at 12:22 pm

How much do I have to give you would be an interesting field trial.

How much do I have to offer to have you participate in the experiment?

dead serious February 24, 2012 at 2:55 pm

Totally agree. If your plan when knocking on my door is to give me less than, $20, don’t.

Bill February 24, 2012 at 4:00 pm

Dead, Do you opt out of receiving email discounts unless they exceed $20?
or, is the inconvenience hurdle only because of physical proximity to the requester. If it is a universal hurdle, do you open coupon books you receive in the mail?

Most people pick up quarters on the sidewalk.

In fact many people abandon their privacy rights for smaller considerations, such as visiting a website known for installing tracking cookies.

CM February 24, 2012 at 11:14 am

As an academic economist I will say that this paper will go down as a pioneering effort to estimate a structural model using a field experiment. I have heard List talk about this advance for years, glad to see that he has put it to good use.

k February 24, 2012 at 2:36 pm

I’m confused, what is the point of doing this?

Both experiment and structural model are deriving from some theory, it is a different way to test the theory.

In any case a good field experiment should be built with some model in mind, structural or otherwise.

k February 24, 2012 at 11:56 am

“These findings suggest that social pressure is an important determinant of door-to-door giving.”

and

“Every year, 90% of Americans give money to charities. Is such generosity necessarily welfare enhancing for the giver?”

and

“door-to-door fund-raising campaigns on average lower the utility of the potential donors”

I don’t understand how the conclusion relates to the question, if Americans give to charity through mostly other means.

k February 24, 2012 at 11:59 am

“if the flyer allows checking a Do Not Disturb box, reduces giving by 28% to 42%. The latter decrease is concentrated among donations smaller than $10″

so these are the sorts of people who take out change, because they don’t want to appear to be awful people. right? So how does that lower utility, if in my utility function I am accounting for how others think of me?

bleh February 24, 2012 at 12:05 pm

Stanish view here: Just because people don’t want to be disturbed by charity, for some calculable dollar amount, doesn’t mean they don’t get more out of it than they put in.

That kid doesn’t want to take his medicine, but he’s happier/healthier in the long run you cajole, threaten or shove it down his throat… Not a perfect metaphor, but just because you try to get out of doing something doesn’t mean it’s not worth doing.

Hell, I’m not sure trying to avoid doing something necessarily means you don’t want to do it — any student that has struggled with procrastinating studies will tell you really wanted to study.

CM February 24, 2012 at 12:10 pm

The idea is that the person would be better off had they never gotten off the couch. Once someone answers the door they are put in the position: give nothing and suffer disutility of not giving or give something because the dollar gift is less bad than saying no.

With a clever design they can tease this value out because they compare gifts from warning and no-warning treatments.

Bill February 24, 2012 at 12:26 pm

The utility of not being bothered also explains the success of automatic renewal and contribution programs to your local public radio or tv station.

Using this logic, you would expect a higher donation, cet par, given that you have taken an annoyance cost off of the shoulder of the contributor, or a higher contribution rate (holding contributions levels constant).

Of course, this logic holds only if you are not lonely and are actually looking forward to the telephone call asking for your contribution.

Tom February 24, 2012 at 1:03 pm

Couldn’t disagree more on John List, his work has been shredded when reviewed by non-libertarians. As for the study above, I’m not sure why they wouldn’t include people who give for tax break reasons or for ideological, like the Koch brothers, or corporations.

CM February 24, 2012 at 1:12 pm

Tom, can you tell us how non-libertarians have shredded List’s work? And, note that he worked in a Republican White House so they actually like him. He now consults for obama on softwood lumber so they actually like him.

Which party does not like him–the know nothings?

TallDave February 24, 2012 at 1:07 pm

I prefer tipping unusually well to charity.

Rahul February 24, 2012 at 2:41 pm

Ditto. $100 spent on tips a month makes me feel a hell lot better than writing a $100 check to a charity. I wonder why? Temporal and spatial proximity? Instant gratification? The fact that it is spread out into 50 smaller encounters?

TallDave February 24, 2012 at 9:08 pm

Maybe it’s the complement to that well-known psychological phenomenon whereby rewards are more appreciated if the subject feels they’ve earned the reward?

Bill February 24, 2012 at 2:53 pm

Tall, I would have thought that instead of giving a charitable tip to the waitress you would have recognized that giving cash handouts to the poor would simply have been supporting a beer or drug habit.

TallDave February 24, 2012 at 9:06 pm

I’m not opposed to people finding utility in beer or drugs. Pursuit of happiness.

Jule February 24, 2012 at 2:13 pm

I see parallels in this study to research showing that switching from in-person voting to vote by mail can decrease voter turnout.

Adam February 24, 2012 at 4:11 pm

I don’t understand how you can estimate deadweight loss without giving any thought whatsoever to the utility gained by the recipients of charity.

Bill February 24, 2012 at 6:36 pm

+1,

unless the utility function is: U(give) > U(receive),

or in Biblical economic terms,

the exepected utility in giving is greater than expected utility in receiving (ie, it is better to give than to receive).

Note: there is no peer reviewed economic research supporting this Biblical pronouncement.

Just take it on faith.

k February 24, 2012 at 9:38 pm

they are just in it for the money

k February 24, 2012 at 9:42 pm

any charity at all will only raise the utility of the person receiving

well at least that’s the assumption, it’s not a bad one

k February 24, 2012 at 9:44 pm

“individuals would rather not give but dislike saying no, for example, due to social pressure.”

yes, why is there something called “social pressure”? and why does it make us dislike saying no?

Willitts February 24, 2012 at 10:04 pm

Anyone who knocks on my door is no one I want to talk to.

I’m surprised anyone answers their door anymore.

I don’t answer my home phone either. The only reason I have a home phone is for the security system. No one who calls my home is anyone I want to talk to.

If I ever have a Type I Error, I’m sure the person will either understand, yell my name, or call my cell phone.

No one who asks for charity is worthy of it. I make exceptions for Girl Scout cookies.

Alan February 24, 2012 at 10:51 pm

Giving to charity is supporting losers who ought to fade away. People who give to charity are attempting to perpetuate that which ought to become extinct. If charity collectors wanted to take small steps to a much better world, they would collect the money then give it to the Koch brothers or else tell the intended recipients to beg for themselves.

Highgamma February 25, 2012 at 1:16 am

If you give me the chance to tell you to go away on a flier, I’ll do that. If you knock on my door uninvited, I’ll answer the door and tell you to go away. So, I don’t really see the “opening the door part” as having any meaning. In terms of the small donation, if my wife opens the door, she’ll feel sorry for the poor college student who is soliciting and give him/her a small donation (and make me grumble when I find out since we’re now on “the list”). I don’t consider that social pressure as much as good marketing.

Schoolmaster February 25, 2012 at 11:39 am

thought this said “chastity”

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