the corporation tax elasticity of charitable donations abstract with the continued downward pressure on corporation tax rates this paper analyses the corporation tax elasticity of donations there is strong evidence of an inverted u shape relationship between corporation tax rates and donations donations are initially increasing at a decreasing rate as a function of the corporation tax rate and are maximised at a rate of 27 percent between 2014 and 2018 the uk corporation tax rate decreased from 21 percent to 19 percent our results indicate that ceteris paribus this equates to a 34 percent decrease in an average uk firm s donations as corporation tax rates continue to decline the potential revenue implications for charities are increasing in importance the evidence also supports the theory of management utility maximisation as a determinant of corporate giving

offset carbon emissions or pay a price premium for avoiding them a cross country analysis of motives for climate protection activities abstractthis article contributes to the economic literature on pure and impure public goods by considering two alternatives for contributing to the public good climate protection offsetting carbon emissions from conventional consumption or paying higher prices for climate friendly products we empirically examine a wide range of motives and their impact on individuals choice in favour of these two alternatives relying on data from representative international surveys our results indicate that environmental awareness warm glow motives and the desire to set a good example have the most robust effects on both climate protection activities in germany and the united states however some motives differ considerably between both alternatives and the two countries a green identity enhances the willingness to pay a price premium for climate friendly goods or services in germany while social norms seem to be of much higher relevance in the united states our results further suggest that the choice of climate

occupational choice and the process of development this paper models economic development as a process of institutional transformation by focusing on the interplay between agents occupational decisions and the distribution of wealth because of capital market imperfections poor agents choose working for a wage over self employment and wealthy agents become entrepreneurs who monitor workers only with sufficient inequality however will there be employment contracts otherwise there is either subsistence or self employment thus in static equilibrium the occupational structure depends on distribution since the latter is itself endogenous we demonstrate the robustness of this result by extending the model dynamically and studying examples in which initial wealth distributions have long run effects in one case the economy develops either widespread cottage industry self employment or factory production employment contracts depending on the initial distribution in the other example it develops into prosperity or stagnation

lobbying by capital and labor over trade and labor market policies abstract this paper uses the common agency approach to analyze the joint determination of product and labor market distortions in a small open economy capital owners and union members lobby the government on both tariffs and minimum wages while other factors of production are not organized the paper shows that product and labor market distortions always move in the same direction and that their level is not modified by social pacts between capital and labor it also shows that labor market distortions are second best hence conditionality by foreign organizations should target distortions in product markets but not in labor markets

closing the regional equity capital gap the role of informal venture capital there is evidence from a number of countries that small firms encounter a shortage of long term investment finance particularly at start up and initial growth expansion of the institutional venture capital industry has done little to fill this equity gap on account of its preference for making large investments in established companies and management leveraged buyouts moreover the supply of venture capital exhibits a high level of spatial concentration initiatives by state provincial and local governments most notably in economically lagging regions to increase the supply of risk capital for start ups and early stage businesses have at best provided a very partial and often costly solution a more appropriate approach to increasing the supply of start up and early stage finance is to facilitate the more efficient operation of theinformal venture capital market informal investors or business angels are private investors who provide risk capital directly to new and growing businesses in which they have no family connection most business angels are unable to find sufficient investment opportunities and so have substantial uncommitted funds available there is also considerable scope for expanding the population of business angels the most cost effective means of closing the equity gap is therefore for the public sector to underwrite the operating costs of business introduction services whose objective is to overcome the two main sources of inefficiency in the informal venture capital market namely the invisibility of business angels and the high search costs of angels seeking investment opportunities and entrepreneurs seeking investors by the provision of a channel of communication between informal investors and entrepreneurs seeking finance

the influence of collective action on the demand for voluntary climate change mitigation in hypothetical and real situations in this experiment we investigate determinants of the individual demand for voluntary climate change mitigation subjects decide between a cash prize and an allowance from the eu emissions trading scheme for one ton of co2 that will be deleted afterwards we vary the incentives of the decision situation in which we distinguish between real monetary incentives and a hypothetical decision situation with and without a cheap talk script furthermore decisions were implemented either as purely individual or as a collective action using majority voting we observe a significant hypothetical bias in the demand for voluntary climate change mitigation in case of the individual decision situation this bias is caused solely by subjects with low income collective decision making affects demand positively in the hypothetical decision situation only

attitudes and behaviors of informal investors toward early stage investments technology based ventures and coinvestors abstract seed capital financing for new firms is important to the commercialization of business innovations yet few entrepreneurs have the personal resources necessary to finance very early stage ventures and they often find themselves relying on external sources of seed capital their personal financial capabilities can easily become exhausted and the venture capital industry represents only a partial source of needed capital for start up and infant firms in recent years researchers have discovered the individual of financial means who invests a portion of his assets in early stage risk ventures this individual is variously termed an informal investor or an angel following an initial study by seymour and wetzel in 1981 researchers have expanded the knowledge about the backgrounds investment interests and behavioral patterns of informal investors the fact that informal investors generally invest within 50 miles of their homes or offices makes their participation in the entrepreneurial process particularly important for local economies our understanding of the general role of informal investors in risk venture financing has been greatly enhanced by prior studies however additional work is needed to identify characteristics of persons committed to start up firms or to technology based ventures two especially important types of business activity in the regional competition for economic development fifty five informal investors participated in a mail questionnaire modeled after prior studies sponsored by the small business administration respondents differentiated themselves on a scale of very early stage start up versus later stage risk venture investments and on a scale of technology oriented versus nontechnology oriented investments informal investors in this sample also differed on the average number of coinvestors including institutions per investment implications arise from the study for individuals interested in regional economic development and for entrepreneurs seeking seed capital first persons more committed to start up investing are more likely to have been or to be currently entrepreneurs themselves also these individuals may not be the most visible community members in terms of past entrepreneurial success and acquired wealth in fact persons committed to start up investing tend to have a lower annual income and lower net worth than persons investing in later stage risk ventures individuals playing this important financing role are particularly hard to identify a valuable key to their identification may lie in the fact that they tend to have worked or currently work in ventures similar to those in which they invest individuals committed to investments in technology oriented risk ventures give very little information about their personal characteristics however they do indicate a considerable amount about their investment patterns these investors play a higher risk higher return investment game than do persons less committed to technology based firms technology oriented investors also report a number of actions that appear to help them manage the risks inherent in their investment behaviors contrary to conventional wisdom about informal investors in general technology oriented investors use friends as referral sources less frequently people more interested in technology based ventures in the future look more to business service professionals investment business brokers and accounting law persons as referral sources finally a person s pattern of coinvesting indicates that individual s orientation toward risk a greater number of individual coinvestors in a typical deal is associated with a willingness to invest further from home for example and with a lower return expectation also persons investing with a fewer number of different types of coinvestors individuals and institutions tend to have more personal entrepreneurial experience to invest more in very early stage ventures and to be more interested in financing inventors this study is relevant to community leaders and entrepreneurs in several ways first the project begins to ask pertinent research questions about types of informal investors who play particularly important roles in local economic development second a more differentiated view of the role of the informal investor is suggested because special characteristics of start up investors and technology based investors can be distinguished third some initial clues about identifying these key individuals emerge the study demonstrates a productive line of thinking for community leaders and entrepreneurs in the risk venture financing process

political economy of income distribution dynamics abstract income distribution varies considerably across countries it tends to become more equal with development in some countries but just the opposite occurs in other countries this paper provides a theoretical investigation of the persistent differences in income distribution across countries over time motivated by the relationship between income distribution and public spending at different school levels for a broad range of countries over the past 30 years the analysis centers on the role of public education where specific investments interact with political involvement by different socio economic groups socio economic groups may form lobbies to influence education policy making the formation of lobbies is endogenous persistent inequality is caused by persistent lobbying efforts of the wealthy that lead to an allocation of public education spending more biased toward them

the tragedy of the commons and economic growth why does capital flow from poor to rich countries we analyze a differential game in which all interest groups have access to a common capital stock we show that the introduction of a technology that has inferior productivity but enjoys private access may ameliorate the tragedy of the commons we use this model to analyze capital flight in many poor countries property rights are not well defined since safe bank accounts in rich countries the inferior technology are available to citizens of these countries they engage in capital flight we show that the occurrence of capital flight does not imply that opening the capital account reduces growth and welfare

why do people volunteer an experimental analysis of preferences for time donations why do individuals volunteer their time even when recipients receive far less value than the donor s opportunity cost previous models of altruism that focus on the overall impact of a gift cannot rationalize this behavior despite its prevalence we develop a model that allows for differential warm glow depending on the form of the donation in a series of laboratory experiments that control for other aspects of volunteering such as its signaling value subjects demonstrate behavior consistent with the theoretical assumption that gifts of time produce greater utility than the same transfers in the form of money subjects perform an effort task accruing earnings at potentially different wage rates for themselves or a charity of their choice with the ability to transfer any of their personal earnings to charity at the end of the experiment subjects exhibit strong preferences for donating time even when differential wage rates make it costly to do so the results provide new insights on the nature of vo

informal risk capital in sweden and some international comparisons abstract in many countries there seems to be a shortage of risk capital i e equity or equity linked capital for entrepreneurial ventures seeking external capital as a consequence many entrepreneurial ventures are undercapitalized with a high loan capital burden there is some evidence from the u sa that informal investors provide an essential source of equity capital to entrepreneurial ventures however our knowledge about the informal risk capital markets is dominated by research from the u s a and there are few studies carried out in other countries this study represents the first description of the informal risk capital market in sweden the aim of the study is also to compare the characteristics of informal investors in sweden with those in the u sa and the u k information from 52 informal investors is used for the description of the informal risk capital market in sweden an international comparison is made by using the results of studies by gaston 1989 on informal investors in the u sa and mason et al 1991 on the informal risk capital market in the u k what about the informal risk capital market in sweden traditionally the tax system in sweden has not stimulated private wealth accumulation and there has been a tradition to seek formal institutional solutions to solve the problems faced by entrepreneurial ventures however in recent years there has been a growing interest in the potential role of informal investors to fill the equity capital gap for entrepreneurial ventures today there seems to be an informal risk capital market in sweden even if it is not very large in terms of investor demographics investment activity portfolio characteristics and the relationship between the informal investor and the portfolio firm the informal investors in sweden can be characterized in the following way they are predominantly male and they are financially well off one main characteristic is that they are very experienced entrepreneurs and it can be assumed that the majority of the informal investors have made their fortunes through a cash in of their businesses the informal investors in sweden seem to be frequent investors and their acceptance rate is rather high furthermore they seem to be rather careful in their evaluation of new investment opportunities and also invest large amounts of money in their informal investments the informal investors seem to make their investments in established firms and in more low tech industry sectors therefore they only partly seem to play a role infilling the equity capital gap for entrepreneurial ventures the informal investors relationship to their portfolio firms can be characterized as active but they are not involved to any large extent in daily operations the most common way of organizing the relationship is by way of active work on the board and by providing consulting help when needed what are the similarities and differences between informal investors in the u k the u s a and sweden this study shows that there are some similarities for example informal investors are predominantly male with an entrepreneurial background financially well off and they identify investment opportunities from friends and business associates on the other hand there seem to be some important differences for example informal investors in the u k and sweden seem to be older than those in the u s a furthermore informal investors in sweden invest a higher proportion of their wealth in informal investments compared to their counterparts in the u s a and the u k in terms of investment activities informal investors in the u k can be characterized as less sophisticated and ad hoc investors and they seldom make investments with other informal investors on the other hand informal investors in the u s a and sweden seem to be more professional in their investment activities i e they make many serious evaluations of new investment opportunities and they put rather large emphasis on the evaluation in terms of portfolio characteristics informal investors in sweden seem to take the lowest risks in their investment portfolios compared to their counterparts in the u s a and the u k finally informal investors in the u k the u s a and sweden work differently in relationship to their portfolio firms in the u k the relationship can be characterized as passive i e their involvement in the portfolio firms daily operations is usually rather low on the contrary the informal investors in the u s a work very actively in their portfolio firms the analysis shows that there seem to be two extreme categories of informal investors one extreme is represented by many of the informal investors in the u k they can be characterized as infrequent and less sophisticated investors who invest small amounts of money and work as rather passive investors the other extreme is represented by informal investors in the u s a they seem to be more professional and active in their informal investments informal investors in sweden show some similarities with their u s counter parts but they work less actively in the portfolio firms than do informal investors in the u s a the differences between the characteristics of informal investors in the u k the u s a and sweden are of course attributable to differences in contextual factors such as investment climate entrepreneurial traditions fiscal regimes regulatory environment and wealth distribution this implies that it may be difficult to copy measures to stimulate the informal risk capital market from one country to another

information aggregation through costly political action information about various policy alternatives is dispersed among the individual members of a society prior to a vote over the alternatives some people take costly political action to signal their private information to voters by informing voting decisions political action has potential to decrease the likelihood that voters cast mistaken votes perhaps surprisingly preelection communication may be counterproductive the dispersed information is partially aggregated by the vote and political action may contribute noise to the voting process in some cases the voting mechanism is more likely to implement the full information voting outcome in the absence of preelection political action copyright 1994 by american economic association

why do people give testing pure and impure altruism abstract researchers measure crowd out around one level of charity output to identify whether giving is motivated by altruism and or warm glow however crowd out depends on output implying first that the power to reject pure altruism varies and second that a single measurement of incomplete crowd out can be rationalized by many different preferences by instead measuring crowd out at different output levels we allow both for identification and for a novel and direct test of impure altruism using a new experimental design we present the first empirical evidence that consistent with impure altruism crowd out decreases with output jel d64 l31

standard auctions with financially constrained bidders we develop a methodology for analyzing the revenue and efficiency performance of auctions when buyers have private information about their willingness to pay and ability to pay we then apply the framework to scenarios involving standard auction mechanisms in the simplest case where bidders face absolute spending limits first price auctions yield higher expected revenue and social surplus than second price auctions the revenue dominance of first price auctions over secondprice auctions carries over to the case where bidders have access to credit these rankings are explained by differences in the extent to which financial constraints bind in different auction formats

unequal societies income distribution and the social contract this paper develops a theory of inequality and the social contract aiming to explain how countries with similar economic and political fundamentals can sustain such different systems of social insurance fiscal redistribution and education finance as those of the united states and western europe with imperfect credit and insurance markets some redistributive policies can improve ex ante welfare and this implies that their political support tends to decrease with inequality conversely with credit constraints lower redistribution translates into more persistent inequality hence the potential for multiple steady states with mutually reinforcing high inequality and low redistribution or vice versa

warm glow giving earned money and the option to take giving in dictator games has been shown to vary with the nature of the endowment earned vs house money and the action space give only vs the option to give or take this article is the first to test if these factors similarly affect warm glow giving alone there is no reason that one would expect the same outcomes given that the motivations for warm glow giving are different from the motivations for total warm glow plus purely altruistic giving we find that warm glow giving to charity or philanthropic institutions in a real donation experiment increases when the endowment is earned the option to take does reduce warm glow giving to charity but significant giving remains our results suggest that donating earned income creates greater utility than donating an equal amount from a windfall gain and that warm glow comes not merely from the act of giving but also from the characteristics of the recipient jel c90 d64 h41

does the government crowd out private donations new evidence from a sample of non profit firms abstract during the 1980s government grants to non profit organizations declined dramatically and the price of private donations increased given there are different costs associated with government grants and private donations to non profits it is important to study the relationship between these two sources and determine whether government grants crowd out private donations i take a fresh look at the issue of crowd out and improve upon the literature by exploiting a panel data set that links private donations to non profit firms with the government grants they received i study 430 non profit shelter human services and other similar types of organizations that were in operation between 1982 and 1992 i find private donations to these non profits effectively do not change with changes in government grants after controlling for firm heterogeneity and political and economic factors under an ols specification in a 2sls specification after controlling for possible endogeneity of the government grants the estimated crowd out is significantly different from zero and one dollar on average the estimated crowd out is 50 cents

income distribution and macroeconomics this paper analyzes the role of wealth distribution in macroeconomics through investment in human capital it is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital the initial distribution of wealth affects aggregate output and investment both in the short and in the long run as there are multiple steady states this paper therefore provides an additional explanation for the persistent differences in per capita output across countries furthermore the paper shows that cross country differences in macroeconomic adjustment to aggregate shocks can be attributed among other factors to differences in wealth and income distribution across countries

inefficient lobbying populism and oligarchy this paper analyses the efficiency consequences of lobbying in a production economy with imperfect commitment we first show that the pareto efficiency result found for truthful equilibria of common agency games in static exchange economies no longer holds under these more general conditions we construct a model of pressure groups where the set of efficient truthful common agency equilibria has measure zero second we show that under fairly general assumptions the equilibrium will be biased against the group with the highest productivity of private capital reflecting the fact that on the margin less productive groups find lobbying relatively more rewarding finally as an application if lobbies representing the poor and the rich have identical organizational capacities we show that the equilibrium is biased towards the poor who have a comparative advantage in politics rather than in production if the pressure groups differ in their organizational capacity both pro rich oligarchic and pro poor populist equilibria may arise all of which are inefficient with respect to the constrained optimum

a theory of impact philanthropy this article develops a new model of altruism called impact philanthropy an impact philanthropist is someone who wants to personally make a difference while that motive is straightforward its logical implications are significantly different from other models of philanthropy for example the contributions of other donors can reduce an impact philanthropist s charitable fulfillment as a result cooperation among impact philanthropists can reduce aggregate giving in addition impact philanthropy can lead to a codependent relationship between givers and receivers in which both benefit from the other finally the model suggests a conflict between charitable organizations and its donors concerning the allocation of charitable gifts in particular a charitable organization prefers to spread a donor s contribution across many goods whereas a donor prefers to target his or her contribution at a specific good d 2003 elsevier b v all rights reserved

political equilibrium income distribution and growth this paper analyzes the impact of income distribution on growth when investment in human capital is the source of growth and individuals vote over the degree of redistribution in the economy the model has three main features first very different patterns of income distribution are conducive to high growth at different levels of per capita income second growth is associated with an externality whereby investment in human capital by one group increases the productivity of other groups thus potentially enabling them to invest in human capital third the initial pattern of income distribution and the resulting political equilibrium are crucial in determining whether the transmission of this externality is promoted in which case growth is enhanced or prevented in which case growth is stopped using a non overlapping generations model with voting i derive several empirical implications in particular the model implies an inverted u relation between levels of inequality and levels of income in cross sections but not necessarily in time series a result that seems consistent with a number of empirical studies

an experimental test of the under annuitization puzzle with smooth ambiguity and charitable giving abstract in a life cycle model with a bequest motive we study the impact of smooth ambiguity aversion to uncertain survival probabilities on the optimal demand for annuities we implement a theory driven laboratory experiment first a subject s ambiguity attitude is elicited in a simple experimental setting able to make the smooth ambiguity model operational then in a two period annuity bequest decision problem the subject s bequest in the second period is presented as a donation to a previously chosen charity contingent to the subject being active after the first period in line with the theoretical predictions we find that ambiguity averse resp loving subjects invest less resp more in annuities than ambiguity neutral ones furthermore subjects contingent donation to the chosen charity increases in their investment in annuities only for sufficiently high levels of warm glow altruism

cooperation in community interaction without information flows we study cooperative behaviour in communities where the flow of information regarding past conduct is limited or missing players are initially randomly matched with no knowledge of each other s past actions they endogenously decide whether or not to continue the repeated relationship there is incomplete information regarding player types a subset of the population is myopic while the remainder have discount factors that permit cooperation in principle we define social equilibrium in such communities such equilibria are characterized by an initial testing phase followed by cooperation if the test is successful it is precisely the presence of myopic types that permit cooperation by raising barriers to entry into new relationships we examine the implications of increased patience which takes two forms an increase in the number of non myopic types and an increase in the discount factor of non myopic types these two notions turn out to have strikingly different implications for the degree of cooperation that can be sustained

innis lecture equity and equality is horizontal equity he the most widely accepted principle of equity or does it stand in opposition to the advancement of human welfare this paper argues that the case for the he principle is not as straightforward as is usually thought and that it requires advanced notions of justice and well being the most likely ethical basis for he appears to combine a rawlsian maximin principle and a view of well being that allows for relative local comparison effects the paper also explores some of the dimensions of equality and well being along which the he principle can be applied and presents a number of examples showing how he considerations can provide an important input into policy analysis le principe d d equite horizontale he constitue t il le principe ethique le plus largement admis ou est il un frein a l avancement du bien etre cet article explique pourquoi les assises ethiques du principe d eh ne sont pas aussi claires qu il est parfois suggere et demontre que ce principe fait plutot appel a des notions avancees de justice et de bien etre les assises morales les plus susceptibles d appuyer le principe d eh semblent combiner un argument de type maximin rawlsien et une perspective du bien etre qui tient compte des effets locaux relatifs de comparaison le papier explore egalement certaines des dimensions de l egalite et du auxquelles le principe d eh peut etre applique et presente un certain nombre d exemples montrant en quoi de considerations de type eh peuvent influencer l analyse de politiques

cheap talk and burned money we augment the standard crawford sobel 1982 econometrica 50 1431 1451 model of cheap talk communication by allowing the informed party to use both costless and costly messages the issues on which we focus are the consequences for cheap talk signaling of the option to burn money and the circumstances under which both cheap talk and burned money are used to signal information

corruption and development a review of issues in this paper we start with a discussion of some of the different denotations of the problem of corruption we then consider the ways in which the damaging consequences of corruption operate in a developing economy while not ignoring its possible redeeming features in some cases we pursue the question of why corruption is perceptibly so different in different societies and also persistent finally we examine the feasible policy issues that arise in this context

conflict and distribution abstract we develop a behavioral model that links the level and pattern of social conflict to the societywide distribution of individual characteristics the model can be applied to groups that differ in characteristics such as wealth ethnicity religion and political ideology we settle questions of existence and uniqueness of conflict equilibrium conflict is seen to be closely connected with the bimodality of the underlying distribution of characteristics however in general the conflict distribution relationship is nonlinear and surprisingly complex our results on conflict patterns also throw light on the phenomena of extremism and moderation journal of economic literature classification numbers d63 d72 d74

the rise of mass consumption societies this paper studies mechanisms behind the rise of mass consumption societies the development process depicted follows the flying geese pattern in which a series of industries take off one after another as productivity improves in these industries each consumer good becomes affordable to an increasingly large number of households which constantly expand the range of goods they consume this in turn generates larger markets for consumer goods which leads to further improvement in productivity for such virtuous cycles of productivity gains and expanding markets to occur income distribution should be neither too equal nor too unequal with too much equality the economy stagnates in a poverty trap with too much inequality the development stops prematurely

inequality lobbying and resource allocation this paper describes how wealth inequality may distort public resource allocation a government seeks to allocate limited resources to productive sectors but sectoral productivity is privately known by agents with vested interests in those sectors they lobby the government for preferential treatment the government even if it honestly seeks to maximize economic efficiency may be confounded by the possibility that both high wealth and true economic desirability create loud lobbies broadly speaking both poorer economies and unequal economies display greater public misallocation the paper warns against the conventional wisdom that this is so because such governments are more corrupt jel d72 d78 d82 016 in this paper we propose a particular channel through which wealth inequality distorts the resource allocation process our analysis rests on four premises

the size of the informal venture capital market in the united kingdom despite its undoubted importance to the financing of entrepreneurial ventures there are few reliable measures of the size of the informal venture capital market this paper reviews three methods used to generate such estimates market based approaches firm based approaches and the capture recapture approach and develops an alternative approach that is based on scaling up from the visible segment of this market represented by business angel networks this methodology is applied to provide the first formal estimate of the size of the informal venture capital market in the united kingdom informal venture capital investment is shown to broadly equate to the amount of institutional venture capital provided to start up and early stage ventures reflecting the smaller average size of investments in the informal venture capital market however eight times as many businesses raise finance from business angels than from institutional venture capital funds

inequality as a determinant of malnutrition and unemployment policy this paper explores the policy implications that are obtained once it is recognized that at low nutrition intakes a person s productivity is an increasing function of intake in the context of a fully general equilibrium model it is shown that if aggregate assets in an economy are neither large nor small certain patterns of lorenz improving asset redistributions or nutrition transfers increase aggregate output and reduce the volume of involuntary unemployment and the incidence of undernourishment copyright 1987 by royal economic society

an accurate measurement of the crowd out effect income effect and price effect for charitable contributions in the past empirical research on charitable contributions has focused on two issues estimating the income and price elasticities of contributions and estimating the extent to which government funding crowded out private contributions the two fundamental problems in all these studies are the differences in the underlying conceptual models and the use of imperfect data for empirical analysis this paper addresses both of these problems

working for the warm glow on the benefits and limits of prosocial incentives abstract we study whether using prosocial incentives where effort is tied directly to charitable contributions may lead to better performance than standard incentive schemes in a real effort task individuals indeed work harder for charity than for themselves but only when incentive stakes are low when stakes are raised effort increases when individuals work for themselves but not when they work for others and as a result the difference in provided effort disappears individuals correctly anticipate these effects choosing to work for charity at low incentives and for themselves at high incentives the results are consistent with warm glow giving and have implications for optimal incentive design

charity donations in the uk new evidence based on panel data abstract this paper presents a set of panel data estimates for 159 of the most prominent uk charities for the period 1983 1990 in evaluating alternative specifications we settle on a fixed effects estimation social welfare charities are shown to fund raise short of the point at which net revenues are maximized whereas health and overseas charities are found to net revenue maximize religious charities maximize total revenues estimates of price and fund raising elasticities are presented for charities overall and for four cohorts for alternative income sources no evidence of crowding out is found

corporate philanthropy and productivity evidence from an online real effort experiment contributing to a social cause can be an important driver for workers in the public and nonprofit sectors as well as in firms that engage in corporate philanthropy or other corporate social responsibility policies this paper compares the effectiveness of a social incentive that takes the form of a donation received by a charity of the subject s choice to a financial incentive we find that social incentives lead to a 13 rise in productivity regardless of their form lump sum or related to performance or strength the response is strong for subjects with low initial productivity 30 whereas high productivity subjects do not respond when subjects can choose the mix of incentives half sacrifice some of their private compensation to increase social compensation with women more likely to do so than men furthermore offering subjects some discretion in choosing their own payment schemes leads to a substantial improvement in performance comparing social incentives to equally costly increases in private compensation for low productivity subjects reveals that the former are less effective in increasing productivity but the difference is small and not statistically significant data as supplemental material are available at http dx doi org 10 1287 mnsc 2014 1985 this paper was accepted by uri gneezy behavioral economics

social responsibility and incentives in the lab why do agents exert more effort when principals donate abstract we test experimentally whether and why principals charitable giving affects agents efforts we study a simple principal agent setting in the lab where a principal decides whether to donate a fixed amount to a charity and in the next step an agent chooses his effort we argue there are three potential mechanisms that can trigger a higher effort after a donation in this setting distributional concerns reciprocal altruism and shared warm glow utility we find agents choose higher efforts when principals donate with respect to the mechanisms we find evidence for reciprocal altruism and distributional concerns as drivers of agents performance reactions in the lab

a theory of misgovernance this paper tries to explain why government bureaucracies are often associated with red tape corruption and lack of incentives the paper identifies two specific ingredients that together can provide an explanation the fact that governments often act precisely in situations where markets fail and the presence of agency problems within the government we show that these problems are exacerbated at low levels of development and in bureaucracies dealing with poor people we also argue that we need to posit the existence of a welfare oriented constituency within the government in order to explain red tape and corruption

an experimental test of warm glow giving abstract this paper reports the results of an experimental test of the warm glow hypothesis a participant is presented with the opportunity to contribute from her own endowment to a charity of choice the experiment is designed so that a pure altruist has no incentive to donate the amount the designated charity will receive is preset any contribution by the participant crowds out dollar for dollar giving by the proctor we find that participants on average donated 20 of their endowments and that approximately 57 of the participants made a donation

what drives micro angel investments despite of the significant role of informal venture capital in the financing of new entrepreneurial ventures there is little research explaining the factors determining the propensity of individuals to make microangel investments building on two theoretical frameworks a social psychological theory of planned behavior and an economic theory on the determinants of demand for risky assets in household portfolios we develop a set of hypotheses predicting the propensity of individuals to make informal investments in new businesses owned by others in our analysis we test whether the determinants of micro angel investments are similar when investing in a business owned by a close family member versus more distant business the hypotheses are tested using data from 6007 interviews of finnish adults carried out in the global entrepreneurship monitor program in 2000 2002 the findings show that the theoretical frameworks have more power in explaining investments in firms not owned by close family members the study provides new understanding of the differences in the drivers of different types of micro angel investments

strategic transmission of costly information it is ofren the case that an individual s decision is at least partly based on information received from another and when the agents payoffs depend on both the former s decision and on the latter s information there is an incentive for the informed individual to attempt to bias the decision maker s decision in his or her favor by strategically manipulating the information transmitted in a seminal paper crawford and sobel 1982 hereafter c s study such strategic information transmission in the context of an abstract sender receiver game variants of the crawford and sobel model have been applied widely and as the application varies so often does the interpretation of type in some cases type refers to a preference parameter given by nature as for example in bargaining theory e g farrell and gibbons 1989 matthews 1989 whereas in other settings for instance legislative decision making or expert testimony type refers to more or less technical information concerning how decisions map into final consequences and as such is acquired information e g gilligan and krehbiel 1987 milgrom and roberts 1986 when the information has to be acquired it is natural to suppose the acquisition is costly for otherwise there is no reason why such information is asymmetrically distributed so long as the receiver can observe surely or at least accurately infer whether the sender is informed and so long as messages are cheap talk there is no issue here for strategic information transmission save whether to become informed at all however there are many circumstances when it is inappropri ate to assume the receiver has such knowledge one possibility is that a receiver may know that a sender has some relevant informa tion but be uncertain of the quality of this information a second perhaps more important possibility is that a receiver is unable to tell whether a potential sender is uninformed inter alia this problem constitutes the rationale for ignorance of the law being inadmissible as a legal defense were it admissible then informed miscreants would mimic uninformed transgressors leads voters to be skeptical of politicians claiming ignorance of illegal arms deals and makes the sec sensitive to problems in distinguishing insider trading from legitimate good judgement so there is an intrinsic asymmetry in that it is generally possible for say senders to verify possession of at least some information but it is typically prohibitively difficult to verify any lack of knowledge

assigning resources to budget constrained agents this article studies different methods of assigning a good to budget constrained agents schemes that assign the good randomly and allow resale may outperform the competitive market in terms of utilitarian efficiency the socially optimal mechanism involves random assignment at a discount an in kind subsidy and a cash incentive to discourage low valuation individuals from claiming the good copyright oxford university press

partners in giving the crowding in effects of uk government grants abstract this study examines the determinants of voluntary donations to uk charities using empirical specifications that combine error component and simultaneous equations methods in a series of tests we identify the one way fixed effects endogenous representation for government grants as the best empirical model when this endogeneity is taken into account government grants cause significant crowding in for the full sample and the two largest cohorts price coefficients are negative and fund raising coefficients are positive religion charities are net revenue maximizers whereas other charity cohorts fund raise short of net revenue maximization

impure altruism in dictators giving abstract we design an experiment to test whether incomplete crowding out in dictator games can be rationalized by the impurely altruistic preferences by giving the recipients an endowment of varying levels we create an environment in which crowding out may occur we find that the behavior of 66 of the dictators can be rationalized by the impurely altruistic utility function

economic underdevelopment the case of a missing market for human capital abstract this paper demonstrates that the coexistence of developed and underdeveloped countries can be a stationary equilibrium in a world economy with free trade in consumption goods and physical capital an underdeveloped country is characterized by a high ratio of unskilled workers in the labor force a small stock of physical capital a low gross national product a high rate of return on human capital and a corresponding large wage differential between skilled and unskilled workers the critical assumptions are that future labor earnings cannot serve as collateral on a loan and indivisibilities in education

preferences for power abstract power the ability to determine the outcomes of others usually comes with various benefits higher compensation public recognition etc we develop a new game the power game to demonstrate that a substantial fraction of individuals enjoy the intrinsic value of power they accept lower payoffs in exchange for power over others without any benefits to themselves these preferences exist independently of other components of decision rights cannot be explained by social preferences and are not driven by mistakes confusion or signaling intentions we further show that valuation of power i is higher when individuals directly determine outcomes of others ii depends on how much discretion one has over those outcomes and iii is tied to relationships between individuals we establish that ignoring preferences for power may have large welfare implications and consequently should be included in the study of political systems and labor contracts

resistance redistribution and investor friendliness abstract poor communities sometimes resist private investment and destroy economic surplus even if the government has the willingness and ability to redistribute we interpret such acts of resistance as demands for redistribution destruction contains credible information about how the affected group values surplus and such information is used by the government in implementing the optimal redistribution policy the extent of destruction is increasing in the extent of political marginalization of the affected group resistance not only destroys economic surplus it also mutes the investor s incentives to create surplus the government uses a tax subsidy on the investor to maximize weighted social surplus and we show that the possibility of destruction may force the government to be too soft in its negotiations with the investor we discuss several policy instruments that have the potential to improve welfare these include compensation floor for the affected group legal or financial protection for the investor and licensing fees for the investor

information transmission and inefficient lobbying abstract in a seminal paper grossman and helpman 1994 introduced a framework to understand how lobbying influences the choice of import export tariffs in this paper we extend their analysis and assume that lobbies have private information to analyze the effects of information transmission in a grossman and helpman lobby game information transmission leads to two agency costs one refers to the cost of signaling and the other to the cost of screening the lobby s competitiveness the signaling cost reduces distortions resulting from the screening cost on the other hand distortions from the screening cost enhance the signaling cost the two combined effects generate more distortions in the political game than each effect separately tariff protection and lobbies rents are lower than those found in grossman and helpman s truthful equilibrium therefore information transmission may improve welfare through the reduction of rent seeking activities

a theory of trickle down growth and development this paper develops a model of growth and income inequalities in the presence of imperfect capital markets and it analyses the trickle down effect of capital accumulation moral hazard with limited wealth constraints on the part of the borrowers is the source of both capital market imperfections and the emergence of persistent income inequalities three main conclusions are obtained from this model first when the rate of capital accumulation is sufficiently high the economy converges to a unique invariant wealth distribution second even though the trickle down mechanism can lead to a unique steady state distribution under laissez faire there is room for government intervention in particular redistribution of wealth from rich lenders to poor and middle class borrowers improves the production efficiency of the economy both because it brings about greater equality of opportunity and also because it accelerates the trickle down process third the process of capital accumulation initially has the effect of widening inequalities but in later stages it reduces them in other words this model can generate a kuznets curve

informal risk capital investors investment patterns on the east coast of the u s a abstract in this study we profile a group of informal investors their investment criteria and the nature of their referral network the study supports the findings of several earlier studies it indicates the existence of an extensive informal investment community on the east coast of the u s a which can provide substantial financial resources to startup and young firms a full 58 of the sample investments were in startups a huge proportion compared with formal venture capital sources the study further supports earlier findings that this group is difficult to locate for entrepreneurs and researchers alike this opaque market consists primarily of friends and business colleagues who individually provide modest sums of money 20 000 50 000 but are often able to use their network to assemble a group of investors who will sponsor the entire funding requirement 130 informal investors report that in three years they and their networks raised 38 million dollars to support 286 new venture proposals there are also encouraging indications that these angels are both enthusiastic and persistent many of them claim that they have achieved higher returns via angel activity than any other investment options that they have tried of the angels who did better with alternative investment options more than 80 are still prepared to make further investments even those who reported failed investments in the informal risk capital market remain supportive over 65 indicate a willingness to invest again the criteria by which the angels screen the proposals differ markedly from those of the venture capital community in particular the angels do not appear to be interested in a thorough business plan a sine qua non for venture capitalists unlike the capital firms angels are not interested in competitive insulation they do not limit their investments to industries that are appealing or with which they are familiar nor do they care very much about the degree to which the entrepreneur has identified competition however they are in close agreement with the venture capital community in their concern with the management ability of the venture team and a requirement that there be a clear demonstrated need for the product or service preferably in a market with large potential the study has shed some light on the structure of the referral networks of angels though we do not know from this study how the respondents themselves first heard of the ventures that were described in this survey we do know that their referral network is composed primarily of friends and business colleagues to whom they refer as much as 60 of the proposals that they receive and in which they themselves eventually invest thus they pass on serious opportunities to their network their referees are inclined to be very supportive in our sample almost 75 of them also invested in the venture the current strategy for informal investors is to approach mainly close contacts these are inclined to be supportive 85 also invested in the venture and to follow a trusting investment behavior pattern relying mainly on the recommendation of the angel this strategem ensures that the total capital requirements are met via the network however given the results of this study the angels might be well advised not to stop here they might also approach at least one professional only a small proportion of professionals were approached by our sample of angels less than 30 as the study shows professionals are more effective at selecting successful ventures thus a mixed strategy may be called for use mainly trusting referees to ensure full capitalization and a limited number of professional referees to screen the proposals this will help ensure that those proposals that do get supported by the more trusting members of the network have been competently screened thus increasing to the probability of venture success a discriminant analysis revealed some useful pointers in helping the informal investor select successful ventures first it is critical to select only ventures in which the entrepeneur can be relied on to evaluate the risks of the ventures and manage these risks well angels do not need entrepreneurs that will gamble with their money equally important is to avoid placing too much credence on highly articulate sales pitches by the venture team or too much reliance on ventures in which the main emphasis is on product and proprietary protection rather insist on being shown clear evidence that the product or service has channel and or market acceptance it is also important for angels to stick to investments where they know the industry well and to back venture teams with a solid reputation and a propensity to get involved in the details rather than gloss them over as in the case of studies of venture capital investments competitive insulation in the early stages of the venture is also important

the dynamics of the wealth distribution and the interest rate with credit rationing are uniquely determined and wealth dispersion among individuals or firms is irrelevant introducing credit rationing into the solow model modifies these conclusions multiple stationary interest rates and wealth distributions can exist because higher initial rates can be self reinforcing through higher credit rationing and lower capital accumulation the wealth accumulation process is ergodic in every steady state but wealth mobility is lower with higher steady state interest rates aggregate output is higher in steady states with lower interest rates because credit is better allocated short run interest rate or distribution shocks can be self sustaining and can have long run effects on output through the induced dynamics of the wealth distribution and credit rationing

distributive politics and economic growth a crude distinction between economics and politics would be that economics is concerned with expanding the pie while politics is about distributing it in this paper we analyze the relationship between the two we focus on how an economy s initial configuration of resources shapes the political struggle for income and wealth distribution and how that in turn affects long run growth our main conclusion is that inequality is conducive to the adoption of growth retarding policies we derive this result from a simple political economy model of growth and present cross country evidence consistent with it the key feature of our model is that individuals differ in their relative factor endowments we distinguish between two types of factors an accumulated factor called capital and a nonaccumulated factor called labor growth is driven by the expansion of the capital stock which is in turn determined by individual saving decisions long run growth is endogenous as the aggregate production function is taken to be linearly homogeneous in capital and productive government services taken together the provision of government services is financed by a tax on capital because government services are productive a small tax on

international perspectives on the supply of informal venture capital abstract despite major changes in the number and range of sources of finance for new and small ventures in the united kingdom in recent years there continues to be a shortage of risk capital for ventures actively seeking external equity finance in the united states the informal venture capital market plays a major role in filling this equity gap particularly in the early stages of venture development however there is little comparable information on the size of the informal venture capital pool in the united kingdom or other european economies despite recent recognition that the apparent underdevelopment of this market in the u k represents a major barrier to the development and growth of new ventures this paper therefore presents the first analysis of the informal venture capital market in the u k and compares the characteristics and attitudes of u k informal investors with those in the u s the data reported in this paper have been obtained from a combination of postal survey and snowball sample techniques that generated useable information from 86 informal investors informal investors are playing an important role in venture financing in the u k in three ways they make small scale investments in new and early stage ventures where the equity gap is most significant they are more permissive in their financing decisions than the formal venture capital industry in terms of having lower rejection rates longer exit horizons and lower target rates of return and they invest locally and can thereby close the regional equity gap arising from the overconcentration of venture capital investment in the core south east region in the u k in terms of demographics u k informal investors share many of the characteristics of north american informal investors they are predominantly male with an entrepreneurial background financially well off without being super rich and identify investment opportunities from friends and business associates there are a number of key differences that may be attributable to differences in contextual factors such as personal tax regimes regulatory environments wealth distribution and the structure of the formal venture capital and ipo markets for example u k informal investors are significantly older than those in the u s reflecting the influence of higher u k tax rates on the rate of capital and wealth accumulation more generally in comparison to u s investors u k informal investors have more investment opportunities brought to their attention seriously consider more proposals but invest in no more opportunities operate independently with syndication and joint investment relatively uncommon reducing the average total investment per financing round available to ventures fail to identify entrepreneurs themselves as a primary source of information on investment opportunities have higher rate of return and capital gains expectations are slightly less patient investors and are rather less satisfied with the overall performance of their informal investment portfolios reflecting intercountry and intertemporal variations in investment climate and conditions it appears therefore that the general inefficiency of the informal capital market identified by wetzel 1987 which reflects the invisibility of informal investors the fragmented nature of the market and the imperfect channels of communication between investor and entrepreneur is compounded in the u k case the extent to which this reflects contextual differences on the one hand or simply a slower developmental process in the u k will only be common methodological basis based on the evidence presented in this paper however a key conclusion is that the information networks available to u k informal investors are less effective than those in north america and in particular appear to contain lower quality information and a higher degree of redundant information specific forms of intervention in the market by for example stimulating the flow of information through the promotion of informal investment networking and brokerage services along the lines of u s and canadian examples such as vcn and coin therefore appear defensible

individual vs aggregate preferences the case of a small fish in a big pond we study the relationship between the risk preferences of individuals and the risk preferences of the aggregate economy to emphasize the vast differences that can occur between individual and market preferences brought about through aggregation we assume an economy consisting entirely of risk seekers we show that such individuals can lead to an aggregate economy that is risk averse the converse is also true an aggregate economy that exhibits risk aversion does not imply an economy of individual risk averters an economy demanding a risk premium can be formed from individuals who do not demand such compensation understanding the relationship between the preferences of individuals and the preferences of the aggregate economy is crucial for understanding the connection between the behavioral finance literature which focuses on individual preferences and the asset pricing literature which focuses on aggregate prices we discuss empirical implications of these results this paper was accepted by wei xiong finance

market and non market mechanisms for the optimal allocation of scarce resources a number of identical objects is allocated to a set of privately informed agents agents have linear utility in money the designer wants to assign objects to agents that possess specific traits but the allocation can only be conditioned on the willingness to pay and on observable characteristics i solve for the optimal mechanism the choice between market or non market mechanisms depends on the statistical linkage between characteristics valued by the designer and willingness to pay

to each according to markets tournaments and the matching problem with borrowing constraints we compare the performance of markets and tournaments as allocative mechanisms in an economy with borrowing constraints the economy consists of a continuum of individuals who differ in their initial wealth and ability level these must be assigned to a continuum of investment opportunities or inputs of different productivity with perfect capital markets matching is efficient under both mechanisms markets however generate higher aggregate consumption because of the waste associated with the production of signals under tournaments when borrowing constraints are present tournaments dominate markets in terms of matching efficiency and for sufficiently powerful signalling technologies also in terms of aggregate consumption

uneven growth a framework for research in development economics the textbook paradigm of economy wide development rests on the premise of balanced growth that is on the presumption that all sectors will grow in unison over time as a country gets richer this view has served us reasonably well in some circumstances but is not particularly useful for accounts of modern under development in many developing countries economic growth has been fundamentally uneven software development the outsourcing of services sectoral technological change quick compositional shifts between agriculture and other sectors the rise of particular exports special economic zones and so on this paper will discuss both the sources of uneven growth and its implications with greater emphasis on the latter the paper will argue that much of the distributional issues or the reactions to globalization that we see in modern developing societies can be viewed as reactions to a growth process that is fundamentally uneven and is indeed perceived as such

pareto optimal redistribution and private charity abstract when private charity exists and is motivated by utility interdependence a non pareto optimal outcome the free rider problem typically arises nevertheless incremental fiscal redistribution cannot achieve a paretian welfare improvement so long as private charity continues at positive levels donors respond to incremental fiscal redistribution by reducing their voluntary contributions by exactly a dollar for every dollar transferred in this way no net transfer is achieved unless incremental fiscal redistribution is pursued to the point where private contributions have been driven to zero alternatively a net transfer may be achieved by fiscal measures which affect donors marginal incentives to donate

wealth constraints lobbying and the efficiency of public allocation abstract in esteban and ray 1999 inequality public allocation and development mimeo we formalize a model in which individuals lobby before the government in order to benefit from some productivity enhancing government action infrastructures direct subsidies permissions in short the government honestly tries to allocate these permissions to the agents that will make the best use of them as revealed by the intensity of their lobbying if the marginal cost of resources varies with wealth the amount of information transmitted through lobbying will depend on the degree of inequality in this paper we summarize the main approach and examine the special case of equal wealth we show that the nature of signaling equilibria is critically affected by per capita wealth

the accumulation of wealth and the cyclical generation of new technologies a search theoretic approach in this paper sustained technological progress results from the feedback between technical change and the accumulation of wealth the production technology is affected by a productivity factor which ensues from research and development the research and development process is described as a sequential search problem in which optimal decisions depend on current levels of wealth and technology the resulting growth path displays invention cycles a discovery of a significant technological improvement at the end of a search phase is followed by periods of growth without search eventually sufficient wealth is accumulated research and development resumes and a new cycle begins copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association