AN ECONOMETRIC ANALYSIS OF CHARITABLE GIVING WITH INTERDEPENDENT PREFERENCES

"In practice we are in a situation ... where one's own [contribution] is expected to influence the [contributions] of others. ... A will expect that B and C may also be induced by his gifts to the same or similar objectives." - Vickrey [1962, p. 40] "The estimates ... provide no support for the view that the total amount that an individual contributes is a function of the amount that is given by others. Although these results are clearly not definitive evidence against the notion of such interdependence among individuals, we believe that the burden of proof now rests with those who support a theory of interdependent giving." - Feldstein and Clotfelter [1976, p. 19] I. INTRODUCTION It is widely believed that one person's charitable contributions can be significantly influenced by the contributions of others. The National Survey of Philanthropy, for instance, indicates that a sizable fraction of the population believes that people "pay attention" to what others give when determining their own contribution.(1) Fundraisers also feel that large "leadership contributions" by wealthy individuals can be influential in encouraging more and larger contributions by others [Bakal 1979]. Moreover, interdependence among givers is central to social scientists outside of economics who study altruistic or charitable behavior. Psychologists, for instance, have learned that those who have recently witnessed an altruistic act are more likely to be altruistic, and that people will be more altruistic the more others contribute.(2) Sociologists studying reference groups have shown that choices individuals make often depend on the choices of others who are similar in age, education, social status, and other characteristics, and that such reference groups appear to be important in determining altruistic and charitable activity.(3) Economic theorists have also made interdependent preferences the focus of their theoretical models of giving. In some of the earliest writing on philanthropy, Vickrey [1962] gives an extensive discussion of the role of "neighborhood effects" on contributions. Formal models of altruism, beginning with Becker [1974], also assume any one contributor's choice depends on the contributions of all others, largely because of the public goods aspect of charity.(4) Other models have generalized Becker's approach to include impurely altruistic motives for giving, such as a desire for acclaim, status, or simply a "warm glow" from giving, where the impure altruism also depends on the contributions of others [Andreoni 1989, 1990]. Outside of the literature on charity, there is a long history, beginning with Duesenberry [1949], of economic models that assume the consumption choices of one agent are directly affected by the choices and characteristics of other agents.(5) Yitzhaki [1982], Stark [1990], and Stark and Yitzhaki [1988] have shown the importance of "relative deprivation" in understanding economic phenomena and, in related reasoning, Frank [1984, 1985a,b] has shown that there is a theoretical and empirical basis for assuming that individuals care about how their consumption ranks relative to some group of peers. In addition, Manski [1993a] has shown the importance of "role models" and "reference groups" in the study of dynamic choice. Despite this emphasis on interdependent preferences elsewhere, the empirical literature on charitable giving has been unsuccessful at finding any empirical relevance of interdependence. Feldstein and Clotfelter [1976] are the only economists who have attempted to include variables to capture the interdependence of preferences. Their effort was unsuccessful. As a result, a large literature has developed in which equations for charitable contributions have been estimated without accounting for interdependence. This method has led to a consensus that the tax-price of charitable contributions and donor's income are both important in determining gifts. …