The Economics of Charity Mike Rappaport

Tyler Cowan’s New York Times column discusses this interesting issue.  Here is an excerpt:

Professor List’s work more generally suggests that people becomerational in their spending only through the repeated experience oftrading in markets. This trial-and-error process, with the accompanyingfeedback, is absent when people give money to a distant charity. Oncethe money is gone, donors do not personally bear direct costs from badcharitable decisions. Nor is it easy to learn what went wrong.

ProfessorList has yet to delve into the specifics of donor motives, but theobvious conclusion is that donors do not behave like customers.Customers take great care to learn about the merits of differentexpenditures, on cars or on homes, for example.

But donorsoften give to charities for reasons of pride. Monitoring a charitymeans worrying about the wisdom of contributing to that charity. Manydonors would instead prefer simply to feel good about their generosityand thus they deceive themselves into thinking that all is going well.Furthermore, many donors seek a sense of affiliation and wish to be apart of large and successful organizations the “winning team,” so tospeak. Again, these donors do not focus on how, or if, they actuallyend up improving the world.