Ulric B. and Evelyn L. Bray Seminar in Political Economy

In light of recent evidence, we develop a theory of charitable giving in which donors feel social pressure from a direct solicitation. We show that equilibrium donations are concentrated around social norm: donors below the norm increase giving while those above the norm reduce it. Despite a higher level of the public good, relatively poor and/or low altruism givers fare worse under social pressure. Aggregate donor welfare improves to the extent that the added social motive alleviates the underprovision of the public good -- but overprovision is possible. Our theory therefore predicts a light-handed regulation for charitable solicitations, which is consistent with their exemption from the popular Do Not Call list in the U.S. We further show that contrary to pure altruism, a more equal income distribution may produce more of the public good. In fundraising campaigns where social norm is not apparent, one may emerge endogenously if donors are not too heterogenous. In fact, there may form multiple social norms, which offers a focal point argument for suggested donations.