Do Donors Care about the Price of Giving? A Review of the Evidence, with some Theory to Organize It

Abstract

We study how donors decide which charity to give to. To this end, we construct a theoretical model that clarifies the conditions in which the stand-alone benefit from giving, price of giving, and cost of information acquisition inform giving decisions. The model shows that giving decisions are affected by a price-cost trade-off -a condition where donors care about the price of giving because they want their donations to maximise charitable output, but dislike searching for the price of giving because it is costly. The literature is then reviewed to test the explanatory power of the theoretical model: it seems to support the conjecture that a price-cost trade-off informs donors' giving decisions.

Understanding Social Impact Bonds and Their Alternatives: An Experimental Investigation

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Donations and the Overhead Ratio Are Related Even When Donors Do Not Bother About Efficiency

“…There is a huge literature suggesting that donors take into consideration (perceived) efficiency when determining which organizations to donate to, a reason why watchdog agencies include in their standards and ratings efficiency-related measures (Bhattacharya & Tinkelman, 2009; Wong & Ortmann, 2016). The empirical strategy to corroborate this is to link donations to a variable reflecting in one way or another the share of overhead costs (the sum of administration and fundraising costs) in total costs (the overhead ratio).…”