The impact of charity effort and transparency on the price elasticity of charitable giving

Abstract

Empirical studies suggest that donors are not very responsive to changes in tax/subsidy policies. We construct a framework in which donors imperfectly observe charity's e ort to provide charitable goods/services. Effort is costly for charity. Donors' contributions and charity e ort materialize as a charitable good. Government can manipulate \the price of giving" by o ering tax deductions/subsidies. We show that when price of giving is high enough, charitable giving is more inelastic when charity e ort can only be observed with noise. We also show that for lower prices of charitable giving, equilibrium levels of charity e ort and aggregate contributions under imperfect information are lower than the corresponding perfect information levels. Conversely for higher prices, imperfect information levels are higher than the perfect information levels. iv