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The reasons why people give to charities vary from individual to individual, but it is clear that large, public gifts to a charity from well-known donors increase the number and size of smaller individual gifts. In this working paper, Dean Karlan and John A. List posit that the effect has to do with overcoming the asymmetry of knowledge about the quality of the charity; they test their model in two natural field experiments in partnership with TechnoServe, a charity focused on international development and poverty reduction.
In the first experiment, a group of direct mail recipients is informed that there gift would be matched 2-to-1 by the Bill and Melinda Gates Foundation while a control group received no such offer. Offering the matching grant significantly increased average revenue per solicitation by 81 percent, or 12.3 cents, from prior donors.
In the second experiment, one group was given the name of the matching donor while the control group was not. In this case, the quality signal of naming the Gates Foundation as the source of matching funds significantly increased average revenue per solicitation by 51 percent, or 11.8 cents, among non-prior donors and increased the probability of an individual donation by 26 percent.
The authors argue that the effect has implications beyond fundraising for charities: the results suggest maybe governments could possibly encourage charitable giving for international development by acting in the role of the lead giver. This insight could also be applied to resolving other market failures, such as suboptimal consumption of environmental goods or new technologies, by encouraging governments or other large donors to send quality signals through leadership giving.