DP9749 Impure Prosocial Motivation in Charity Provision: Warm-Glow Charities and Implications for Public Funding

Author(s): Kimberley Scharf
Publication Date: November 2013
Keyword(s): Competition in the Nonprofit Sector, Private Provision of Public Goods, Tax Incentives for Giving, Warm Glow
JEL(s): H2, H3, H4, L3
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9749

We show that warm-glow motives in provision by competing suppliers can lead to inefficient charity selection. In these situations, discretionary donor choices can promote efficient charity selection even when provision outcomes are non-verifiable. Government funding arrangements, on the other hand, face verification constraints that make them less flexible relative to private donations. Switching from direct grants to government subsidies for private donations can thus produce a positive pro-competitive effect on charity selection, raising the value of charity provision per dollar of funding.