Title:
Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving
Author:
James Andreoni
Reference:
Andreoni. James(1990), "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving", The Economic Journel, 100:464-477
Conclusion:
When people make donations to privately provided public goods, they may not only gain utility from increasing its total supply, but they may also gain utility from the act of giving. However, a simple apphcation ofthe public goods model ignores this phenomenon. A consequence of this omission is that the theoretical predictions are very extreme and implausible: total provision of the public good is independent of the distribution of income among contributors, government provision completely crowds out private provision, and subsidies are neutral. On the other hand, the impure altruism model leads to predictions that are intuitive and that are consistent with empirical regularities. By assuming that individuals are not indifferent between gifts made by themselves and gifts made by other individuals or the government, we conclude that redistributions to more altruistic people from less altruistic people will increase total provision, that crowding out will be incomplete, and that subsidies can have the desired effect. Furthermore, subsidies Pareto-dominate direct grants in accomplishing policy goals of government. Finally, using Cobb-Douglas preferences as the basis for calibrating the model, we find that altruism coefficients decline with income for all but the highest class. The result is that the predicted effects of policy are sometimes reversed when impure altruism is considered. This holds out the possibility that the conventional view of charitable giving may be inaccurate, and indicates the potential importance of developing empirical models that account for impure altruism and the interdependence of preferences.