Transaction Costs, the Opportunity Cost of Time and Inertia in Charitable Giving

Abstract

We conduct a laboratory experiment to analyze the effect transactions costs and inertia have on charitable giving. We conjecture that transaction costs will have a greater effect on donations if the solicitation is received when the opportunity cost of time is high. Inertia could become a factor if people intend to give, but postpone making the payment until they have more time, and having postponed making the donation once, keep doing so. We find evidence of a transaction cost effect, with the size of this effect depending on the opportunity cost of time, but no statistically significant inertia effect.Keywords: Charitable giving; dictator game; transaction costs; opportunity cost of time;inertia. JEL Classifications: C91; D64 Acknowledgements: Earlier versions of the paper were presented at the New Zealand Association of Economists Conference (Wellington, June 2013), the Australia New Zealand Experimental Economics Workshop (Brisbane, August 2013), the Science of Philanthropy Initiative Conference (Chicago, October 2013), the North American Experimental Economics Association Conference (Santa Cruz, October 2013) and in the University of Otago Seminar Programme (Dunedin, September 2013). We are grateful to participants for the many helpful comments received. Financial support was provided by the School of Business at the University of Otago and the College of Business and Economics at the University of Canterbury. (Orman, 2004: attributed to T. Trueblood) Introduction.This is not actually a paper about fishing, but about giving money to charity. The above quote, however, sums up what this paper is about if "go fishing" is replaced with "donate".Just as going fishing can be put off to another day, so can donating money to charity. This paper analyzes whether people are subject to such inertia with respect to charitable giving. In particular we ask whether some people intend to give money to charity, but simply never get around to doing so? For example, someone may read an email asking for a donation and is inclined to donate, but as she is busy preparing for a meeting decides to wait until after the meeting to click on the link to the charity's website and enter her credit card details. It is then possible, that having delayed making the donation once, she will do so again, until the opportunity to donate has passed.Why do people postpone making their donations? Does the presence of transaction costs combined with a high opportunity cost of time at the moment of solicitation reduce donations? 1 Both questions have important policy implications as finding ways to reduce transaction costs, and the potential for inertia, could increase donations to charity.The three issues mentioned in the title of the current paper go hand in hand. We conjecture that inertia is likely to exist in the presence of transaction costs when two other conditions are satisfied simultaneously: (1) making a donation does not have to be made on the spot but can be postponed until later (which is usually the case with requests sent ...

Why Do People Volunteer? An Experimental Analysis of Preferences for Time Donations

“…In the latter treatment, subjects only push a button to begin donating and again when stopping; conversely, in MC subjects must choose an amount to donate, enter the amount, and push a button. As field literature has shown (Knowles and Servatka, 2014;Meer and Rigbi, 2013;Rasul and Huck, 2010), even a minor cost may greatly reduce charitable donations. If our experiment is a similar environment to the field, these minor costs might explain the difference between the two treatments.…”