Outline: Crowding out
1. Field data (Kingma, Hungerman, Andreoni and Petrie) 2. Lab data a) Andreoni b) Bolton and Katok c) Limits of the impure altruism model (Ribar and Wilhelm) d) Testing motives 3. Field experiments on motives (DellaVigna, List and Malmendier) Econ 2230: Public Economics
Lecture 7: Motives for giving (cont.)
2: Crowding out in the lab (Andreoni, 93) 2: Crowding out in the lab (Andreoni, 93)
“The Public Good Crowding-Out Hypothesis.” Examine crowding out in a public good game with interior NE Two ppyrimary treatments: No tax Tax
NE?
1 2: Crowding out in the lab (Andreoni, 93) 2: Crowding out in the lab (Andreoni, 93)
Force a 2 unit tax Results: Average contribution including the tax: Equivalent to no tax – except first two columns and four first rows No tax: 2.78 removed Tax: 3.35 Find crowd out of 71.5 percent Looking at last rounds of the five games crowd out 84 percent
Incomplete crowd-out. Subjects who are taxed give more than those who are not taxed – giving for others not a perfect substitute for giving by self. Subjects are concerned about their private contribution to the public good
Bolton and Katok (1998) Bolton and Katok (1998)
“An experimental test of the crowding out hypothesis: The nature of beneficent behavior” Purely altruistic donors: Andreoni’s crowd out analysis based on the assumption that Decrease contribution by 3 if contribution > 3 in Game 2 individuals aim to maximize own payoff. If altruistic and concerned Decrease contribution to zero otherwise for the payoff of others then many contribution levels may be consistent with complete crowd-out Game 1: (πD, πR) = (15, 5) avg. giving $3.48
Game 2: (πD, πR) = (18, 2) avg. giving $2.49
Compare two dictator games
Game 1: (πD, πR) = (15, 5) Accountingg$g for those who contributed less than $3 this generates the Game 2: (πD, πR)=(182)) = (18, 2) complete crowd-out prediction that giving should be $1.83 in $15/$5. Thus crowd-out is (3.48-2.49)/(3.48-1.83) = 60% Complete crowd-out predictions?
2 Ribar and Wilhelm (2002) Limits of pure and impure altruism: n → ∞
Revisit impure altruism Pure altruism: G* = q(w‐T+G‐i)
Max U(xi, G, gi) s.t. xi + gi = w ‐ T Andreoni, 1988: Limn → ∞ dG*/dG‐i = Limn → ∞ q1 = 0 Max U(w‐T‐G+G‐i,G, G‐G‐i) Complete crowd out G* = q(w‐TGT+G‐i, G‐i) dG*= q (dw‐dT+dG ) + q dG 1 ‐i 2 ‐i Impure altruism: G* = q(w‐T+G‐i, G‐i) Impure altruism model embraced because it results in incomplete crowd out Ribar and Wilhelm, 2002, examine what happens as n → ∞ Pure altruism: q1 > 0 and q2 = 0 Limn → ∞ dG*/dG‐i = Limn → ∞ q1 + q2 = ? Pure warm glow: q1 + q2 = 1 R&W show that when U(., ., .) is concave and the warm glow component of Impure altruism: q1 + q2 < 1 utility is strictly operative at all levels of G, then Limn → ∞ G‐i → ∞ and Limn → ∞ q1 + q = 1 Giving by others not seen as perfect substitute: 2 Interpretation? dG*/dG‐i = q1 + q2 > dG*/dw = q1 Incomplete crowd out when fully funded (dt=dG‐i): dG*/dG‐i |dG‐i=dT = q2 > 0 incomplete crowd‐out
Limits of pure and impure altruism: n → ∞ Limits of pure and impure altruism: n → ∞
Pure altruism: G* = q(w‐T+G‐i) Pure altruism results in complete crowd out
Andreoni, 1988: Limn → ∞ dG*/dG‐i = Limn → ∞ q1 = 0 Impure altruism results in no crowd out Complete crowd out
Thoughts?
Impure altruism: G* = q(w‐T+G‐i, G‐i) Impure altruism model embraced because it results in incomplete crowd out Ribar and Wilhelm, 2002, examine what happens as n → ∞
Limn → ∞ dG*/dG‐i = Limn → ∞ q1 + q2 = ? R&W show that when U(., ., .) is concave and the warm glow component of
utility is strictly operative at all levels of G, then Limn → ∞ G‐i → ∞ and Limn → ∞ q1 + q2 = 1 Interpretation?
Altruism is diminishing as a motive at the margin: UG → 0. As a consequence, the first order condition of the impure altruism model converges to the first order
condition of a pure warm glow model (‐ Ux + Ug = 0 )
3 Ribar and Wilhelm, 2002 Ribar and Wilhelm, 2002
Implication for identifying motives for giving: Implication for identifying motives for giving: Impure altruism: crowd out sensitive to contribution of others Impure altruism: crowd out sensitive to contribution of others Not sufficient to look at one crowd out measure. Degree of crowd out Not sufficient to look at one crowd out measure. Degree of crowd out
ddthllthihGdepends on the level at which G-i idThtGis measured. The greater G-i the l ess ddthllthihGdepends on the level at which G-i idThtGis measured. The greater G-i the l ess weight put on altruism weight put on altruism Previous tests of motives focused solely on the predictions of pure Previous tests of motives focused solely on the predictions of pure altruism altruism
A direct test of impure altruism: increase G-i from a low level to a high A direct test of impure altruism: increase G-i from a low level to a high Low High Low High level and test H0: dG*/dG-i ≤ dG*/dG-i level and test H0: dG*/dG-i ≤ dG*/dG-i Increases in contributions by others shifts marginal motive from concern for securing the public good to concern for warm glow Individual response to changes in giving by others should be large when initial contribution by others is low, and small when initial contribution by others is large
Vesterlund, Wilhelm and Xie (2008) Charitable Public Good: Books for Children
“Why Do People Give? Testing Pure and Impure Altruism” Created a new public good through collaboration with the American Objective of paper: Red Cross in Southwestern Pennsylvania Identify private benefit of giving in impure altruism model In the event of a fire in SW PA they help the affected families find Examine multiple crowd-out measures temporary shelter, provide them with clothing, a meal, and give them Test comparative static predictions of both pure and impure essential toiletries altruism model Prior to study no items given to the children affected by the fire Pair each participant with a child (1‐12 years old) whose family home has suffered extensive fire damage Environment that mirrors that of the theory: Each participant informed of an initial amount to be given to the child, A real charitable public good (no VCM) and given an endowment which may be allocated between the child Provision determined by sum of an initial contribution and and him/herself partici pant cont rib uti on ( no exi sti ng ch arit y ) Money given towards the child will be spent on books, which will be Multiple individual public goods of varying sizes distributed by the American Red Cross, immediately after the child has been affected by a severe fire (Few boundary decisions) “Each participant in this study is paired with a different child. Only you have the opportunity to contribute books to the child, neither the American Red Cross nor any other donors provide these books to the child.”
4 Budgets Test 1: Income Effect
1. Child $4 Self $40 1. Child $4 Self $40 2. Child $10 Self $40 2. Child $10 Self $40 3. Child $28 Self $40 3. Child $28 Self $40 4. Child $34 Self $40 4. Child $34 Self $40 5. Child $4 Self $46 5. Child $4 Self $46 6. Child $28 Self $46 6. Child $28 Self $46
Change in giving in response to $6 increase in income What aspects of our models can be tested with these budgets? Normal public good: Increase in giving Normal private good: Increase smaller than $6
Test 2: Balanced Budget Increases in G‐i Test 3: Increasing G‐i
1. Child $4 Self $40 1. Child $4 Self $40 2. Child $10 Self $40 2. Child $10 Self $40 3. Child $28 Self $40 3. Child $28 Self $40 4. Child $34 Self $40 4. Child $34 Self $40 5. Child $4 Self $46 5. Child $4 Self $46 6. Child $28 Self $46 6. Child $28 Self $46
Balanced budget crowd out: Response to a $6 tax contributed to the charity (budget 2 vs. 5 and 4 vs. 6) Pure Altruism U(x,G):$6 decrease Impure Altruism U(xGgx,G,g): Less than $6 decrease
5 Test 3: Increasing G‐i Test 3: Increasing G‐i
1. Child $4 Self $40 1. Child $4 Self $40 2. Child $10 Self $40 2. Child $10 Self $40 3. Child $28 Self $40 3. Child $28 Self $40 4. Child $34 Self $40 4. Child $34 Self $40 5. Child $4 Self $46 5. Child $4 Self $46 6. Child $28 Self $46 6. Child $28 Self $46
Pure Warm‐Glow: U(x,g)
gi does not respond to changes in initial giving
Test 3: Increasing G‐i Test 3: Increasing G‐i
1. Child $4 Self $40 1. Child $4 Self $40 2. Child $10 Self $40 2. Child $10 Self $40 3. Child $28 Self $40 3. Child $28 Self $40 4. Child $34 Self $40 4. Child $34 Self $40 5. Child $4 Self $46 5. Child $4 Self $46 6. Child $28 Self $46 6. Child $28 Self $46
Pure Warm‐Glow: U(x,g) Pure Warm‐Glow: U(x,g)
gi does not respond to changes in initial giving gi does not respond to changes in initial giving Pure Altruism: U(x,G) Pure Altruism: U(x,G)
6 Test 3: Increasing G‐i Increasing G‐i: Pure Altruist
q1 increasing (luxury): gi diminished sensitivity to G‐i 1. Child $4 Self $40 x 2. Child $10 Self $40 3. Child $28 Self $40 4. Child $34 Self $40 w 5. Child $4 Self $46 6. Child $28 Self $46
Pure Warm‐Glow: U(x,g)
gi does not respond to changes in initial giving Pure Altruism: U(x,G)
How is giving gi expected to respond the increased giving by others? Is the effect of a $6 increase in giving by others expected to be greater when the initial gift was $4 versus when it is $28?
G
Increasing G‐i: Pure Altruist Increasing G‐i: Pure Altruist
q1 increasing (luxury): gi diminished sensitivity to G‐i q1 increasing (luxury): gi diminished sensitivity to G‐i x x
w w
G G
7 Increasing G‐i: Pure Altruist Increasing G‐i: Pure Altruist
q1 increasing (luxury): gi diminished sensitivity to G‐i q1 increasing (luxury): gi diminished sensitivity to G‐i x x
w w
G G
Increasing G‐i: Pure Altruist Increasing G‐i: Pure Altruist
q1 increasing (luxury): gi diminished sensitivity to G‐i q1 increasing (luxury): gi diminished sensitivity to G‐i x x
w w
G G
8 Increasing G‐i: Pure Altruist Test 3: Increasing G‐i
q1 increasing (luxury): gi diminished sensitivity to G‐i 1. Child $4 Self $40 x increase in G has a smaller and smaller effect on g and ‐i i 2. Child $10 Self $40 greater and greater effect on G 3. Child $28 Self $40 w 4. Child $34 Self $40 5. Child $4 Self $46 6. Child $28 Self $46
Pure Egoism: U(x,g)
gi does not respond to changes in initial giving Pure Altruism: U(x,G)
q1 increasing: gi diminished sensitivity to G‐i q1 constant: gi constant sensitivity to G‐i q1 decreasing: gi increased sensitivity to G‐i
G
Test 3: Increasing G‐i Experimental Design Participants seated in a large class room 1. Child $4 Self $40 2. Child $10 Self $40 Each participant paired with anonymous child 3. Child $28 Self $40 Within subjjgect design: For each bud get allocate endowment between 4. Child $34 Self $40 self and child – concerns? 5. Child $4 Self $46 6. Child $28 Self $46 Child receives allocation from participant plus fixed allocation “Double blind” – but participants may give up anonymity to receive Pure Egoism: U(x,g) receipt from American Red Cross gi does not respond to changes in initial giving Pure Altruism: U(x,G) Eckel, Grossman, Johnston-verification procedure q1 increasing: gi diminished sensitivity to G‐i One check is written per child, sent to American Red Cross q1 constant: gi constant sensitivity to G‐i Monitor oversees procedures of experiment are followed and signs q1 decreasing: gi increased sensitivity to G‐i Impure Altruism: U(x,G,g) a statement to that effect Increasing G‐i shifts marginal motive from altruism to warm glow Checks shown in laboratory All else equal diminished sensitivity to G‐i Post monitor statement & receipt from American Red Cross
9 Results: General Characteristics Distribution of Average Individual Contribution
Six sessions (13‐20 participants) N=85 Substantial gggiving across budgets One person free rides (8 w/ avg. giving ≤ $3) Five people give everything ( 7 w/ avg. giving ≥ $38) Average giving across all six budgets $20.82
Test 1: Average Income Effect Test 2: Balanced Budget Crowd Out
Budgets Pure altruism: 1. Child $4 Self $46 Giving 27.2 complete crowd out 2. Child $4 Self $40 Giving 24.8 Impure altruism: 3. Child $28 Self $46 Giving 19.5 incomplete crowd out 4. Child $28 Self $40 Giving 17.0
Public good normal: Significant income effects (p<0.001) Private good normal: Effect differs from 6 (p<0.001) C’tCan’t rejjtect tha t income effec ts at low and hig h iitilinitial giiiving are the same (p=0.83)
10 Test 2: Balanced Budget Crowd Out Test 2: Balanced Budget Crowd Out
Low initial giving Why different crowd‐outs at low and high giving? 1. Child $4 Self $46 Giving 27.2 (1.26) Very sensitive to truncation: e.g. truncated pure altruist will 2. Child $10 Self $40 Giving 21.6 (1.13) appear as an impure altruist Crowd‐out = ‐5.66(p=0.00). Eliminate all truncated decisions (n=66) Cannot reject equals ‐6 (p=0.51) Crowd‐out low ‐5.73 (p=0.51) Crowd‐out high ‐5.00 (p=0.004) High initial giving 1. Child $28 Self $46 Giving 19.5 (1.38) Crowd out same at high and low: p=0.27 2. Child $34 Self $40 Giving 14.8 (1.25) Tobit CdCrowd‐out low ‐6056.05 (p=0.92) Crowd‐out = ‐4.63 (p=0.00) Crowd‐out high ‐5.21 (p=0.11) Can reject ‐6 (p=0.003) Crowd out same at high and low: p=0.25 Crowd out same at high and low p=0.27
Test 3: Increasing G‐i Test 3:Response to Increasing G‐i w=40
1. Child $4 Self $40 60 2. Child $10 Self $40 3. Child $28 Self $40 50 4. Child $34 Self $40 40 4 5. Child $4 Self $46 6. Child $28 Self $46 10
% 30 28 Pure Warm Glow: U(x,g) 20 34 gi does not respond to changes in initial giving Pure Altruism: U(x,G) 10 q increasing: g diminished sensitivity to G 1 i ‐i 0 q1 constant: gi constant sensitivity to G‐i 0-10 11-20 21-30 31-40 q1 decreasing: gi increased sensitivity to G‐i Impure Altruism: U(x,G,g) Contribution q1 increasing or constant: gi diminished sensitivity to G‐i q1 decreasing: ? Participants are not solely motivated by warm glow
11 Test 3: Pure Egoism: Individual Response Test 3: Increasing G‐i 14 participants make contributions that only depend on income Budgets 1 free rider 1. Child $4 Self $40 Giving 24.8 (1.10) 5 gave everything 2. Child $10 Self $40 Giving 21.6 (1.13) 3. Child $28 Self $40 Giving 17.0 (1.27) 4. Child $34 Self $40 Giving 14.8 (1.25)
Crowd out at low contribution: ‐3.28 (std.err 0.44) Crowd out at high contribution: ‐2.16 (std.err 0.39) Consistent with impure altruism crowd out decreases with increase in contribution (p=0.031)
q1+q2 increases from 0.4 to 0.6
Test 3: Increasing G‐i Test 3: Increasing G‐i Budgets Diminished sensitivity also consistent with the pure altruism 1. Child $4 Self $40 Giving 24.8 (1.10) model when q1 increasing (luxury) 2. Child $10 Self $40 Giving 21.6 (1.13) According to test 1 we cannot reject constant q1 3. Child $28 Self $40 Giving 17.0 (1.27) 4. Child $34 Self $40 Giving 14.8 (1.25) I.e., on average pure altruism predicts no change in crowd out
No truncation n=66: Low crowd out: ‐3.65 (std.err 0.52) High crowd out: ‐2.45 (std.err 0.44) Tobit Low crowd out: ‐3.59 (std.err 0.46) High crowd out: ‐2.52 (std. err 0.43)
12 Test 3: Increases in G‐i Summary of Test 2 & 3 On average comparative statics are broadly consistent with the impure altruism Crowd Out Test 2: The degree of crowd out decreases with the forced nLow (4) High (28) p contribution level and is incomplete at high initial contributions Test 3: Diminished sensitivity to changes in initial contributions q1 increasing 24 ‐4.9 ‐1.5 0.004 How big is the concern for the private benefit? q1 constant/ decreasing 61 ‐2.6 ‐2.4 0.71
Untruncated
q1 increasing 21 ‐5.2 ‐1.7 0.01
q1 constant/ decreasing 45 ‐2.9 ‐2.8 0.81
Estimating repr. CD Utility function Estimating repr. CD Utility function
Random Effect Tobit
N=85 participants
Use random effect non‐linear Tobit to estimate Coefficient Std. err p‐value Alpha 0.595 0.024 0.00 Beta 0.021 0.009 0.02
13 Estimating repr. CD Utility function Vesterlund, Wilhelm and Xie (2008)
Summary: Random Effect Tobit Consistent with impure altruism we find greater support for pure altruism at low initial contributions, and less support at N=85 participants higher initial contributions Although we cannot reject the impure altruism model, the Coefficient Std. err p‐value weight on the private benefit component is small: giving not Alpha 0.595 0.024 0.00 merely driven by a desire to feel good about ones deeds – Beta 0.021 0.009 0.02 but also by a concern for the welfare of others So does warm glow not matter? Predicted giving at budget (4,46) $26.82 Depends on environment Private benefit alone predicts contribution of $0.95 Altruism accounts for more than 95%
3: Field Experiments on Motives DellaVigna, List and Malmendier
DellaVigna, List, and Malmendier Fund-raising for two charities: Examine social pressure theory a Rabida Children’s Hospital in Chicago gggiving is due to social pressure (rather than pure or im pure East Carolina Hazard Center (()ECU) altruism)
pay a disutility cost S if do not give when asked Field experiment: door-to-door fundraiser no disutility cost if can avoid to meet the solicitor Control group: standard fundraiser Model of giving with altruism and social pressure Flyer Treatment: flyer on doorknob on day before provides Consumer may receive advance notice of fundraiser advance notice about hour of visit Consumer can avoid (or seek) fundraiser at a cost Opt-Out Flyer Treatment: flyer with box “do not disturb” Consumer decides whether to give (if at home)
14 Flyers Experimental Design
Door-to-Door Fund-raising Chosen because easier to provide notice of future drive How common? Use survey to ask respondents Did peopl“le “come to your d oor to rai se money f or a ch hit”iarity” in past 12 months? 73 percent of 177 respondents had door-to-door visit Compare to 84 percent for phone, 95 percent for mail Did you give at least once in past 12 months? 40 percent for door-to-door Compare to 27 percent for phone, 53 percent for mail How much did you give in past 12 months? $26 for door-to-door ($26 if not capped at $1,000) $59 for phone ($89 if not capped), $114 by mail ($897 if not capped) Summary: Common method, Small amounts given
Experimental Design Script
Recruitment and Training: 48 solicitors and surveyors (If a minor answers the door, please ask to speak to a parent. Never enter a house.) undergraduate students at the University of Chicago, UIC, and Chicago State University • Hi, my name is ______. I am a student volunteering for the University of Chicago visiting Chicago area households today on interviewed, trained at UoC behalf of La Rabida Children’s Hospital [the East Carolina University assigned to multiple treatments Center for Natural Hazards Research]. (Hand brochure to the resident.) aware of different charities but not of treatment La Rabida is one of Illinois’ foremost children’s hospitals, dedicated to Time and Place: caring for children with chronic illnesses, disabilities, or who have been Saturdays and Sundays between April 27, 2008 and October 18, abused or neglected. La Rabida’s mission is to provide family-centered 2008. Hours between 10am and 5pm care that goes beyond a child’s medical needs to help them experience as normal a childhood as possible - reggyardless of a family’s ability to Towns around Chicago pay. La Rabida is a non-profit organization. To help La Rabida fulfill its mission, we are collecting contributions for La Rabida Children’s hospital today. Would you like to make a contribution today?
15 16 Above $10
17 Results
Flyer reduces the share of households at home by 10% (simple flyer) to 25% (flyer with opt-out box) Simple flyer does not affect giving Flyer with opt-out box reduces giving by 30% Reduction in giving exclusively for small donations (donations < $10)
Consistent with social pressure driving contributions
Discussion Next
Can preferences be inferred from the decision to opt out? Mechanism Design Lindahl equilibrium, 1958 Groves and Ledyy(ard, (Econometrica, 1977) Homework assignment for Monday Feb 7 posted on http://www.pitt.edu/~vester/econ2230.htm
18