Alumni Donations and Colleges’Development Expenditures: Does Spending Matter?

I Introduction: The Unexplored Market for Higher Education Gifts The newly minted graduate has scarcely had time to frame the new diploma before the first letter of solicitation arrives from the alumni office.(1) In the ensuing years, a substantial percentage of alumni will contribute to their alma maters. But why? This is the question we explore in this paper. Casual observers usually assume that, in the spirit of altruism, alumni give because their schools need the money. Reporting to the Council for Aid to Education (CAE) for the academic year 1990-91, 1,046 schools reported aggregate giving that accounted for seven percent of the educational and general expenses of higher education. Recently, schools have found that cuts in public support for higher education have made that seven percent critically important (Demner, 1995; Hsu and Tousignant, 1995; Walters, 1995). No doubt this need plays a part in many donations and may be the only motivation for some. Nevertheless, we believe altruism is not the dominant factor, and the ways in which vast sums are spent by colleges for fund-raising campaigns suggests that they do not think it is, either. Alumni offices know their graduates generally need to be motivated. While some give because of what the college did for them in the past, others may give because of what they perceive the college will do for them now, or in the future. Donors seem to want the psychic satisfaction that accompanies recognition from their former school - from appearing in a list of names in the alumni bulletin, to receiving free football tickets, to having a scholarship or building named after them. Giving to higher education involves a mutual satisfaction of needs. We propose a market structure in which alumni supply donations and, in return, colleges provide recognition to donors. The price in this exchange is the developmental cost to the college of raising a dollar of donations, and this cost captures the benefits rendered to donors. The paper proceeds as follows. Section II reviews related work. Section III develops an exchange model to explain giving to higher education. Section IV describes the data and the econometric testing of the model. While the developmental costs were reported to and summarized by the Council for Advancement and Support of Education (CASE) in 1990, only central tendency data was published. We have been able to obtain some of the original data. To our knowledge, no prior statistical analysis of giving to higher education has incorporated the costs of fund raising, alumni relations or other constituent relations. Section V provides our findings. Briefly, we find that the greatest influence on alumni giving is expenditures on alumni relations. Two variables characterizing the student body significantly affect alumni giving: the percent which are "Greek", positively; and the percent which are part-time, negatively. A school's NCAA division, whether it is public or private, or whether it is primarily a research/doctoral institution do not seem to affect alumni giving. The level of bequests, or planned giving, positively affects giving, but the size of a school's endowment has no significant effect. The last part of the study provides some implications for college presidents and development officers and summarizes our findings. II The State of the Literature Not surprisingly, the academic literature linking economic behavior to donations to higher education is sparse, since schools compete for donors. Moreover, until recently there has not been any data on the costs of college development activities designed to procure donations. In consequence, studies are cited that for the most part, are only peripherally related to our work. Economists often explain philanthropy in terms of an "interdependent utility thesis." This holds that a prospective donor's utility is influenced directly by the utility of others. …