Donations over time are substitutes but habit formation is also important

By Maja Adena and Steffen Huck

There are numerous ways to encourage charitable giving, ranging from simple solicitations to complex incentive schemes. For all these methods, a fundamental question is whether they crowd-in or crowd-out contributions. This is extensively studied for tax rebates and matching incentives. More recently, the question of whether solicitations for a new cause generate additional donations or simply replace donations that would have been made to other causes has attracted considerable attention.This is important as almost all charities that solicit donations engage in repeated fundraising calls.

In order to study intertemporal crowding, BCCP Fellows Maja Adena (WZB) and Steffen Huck (WZB) conducted a repeated large-scale experiment in conjunction with a German opera house. The study examines intertemporal crowding in fundraising for the same charitable project in two subsequent field experiments. In the first year, opera customers receive a fundraising letter asking them to contribute to a charitable project. The project offers workshops for children from economically disadvantaged areas with a focus on culture and integration. In the control treatment, the recipients received a solicitation let­ter that asked them in a standard way to donate money. In the treatment group, donors’ beliefs about the likelihood of future fundraising calls are increased through the insertion of additional words and phrases that are suggestive of repetition in the future. The experiment is repeated in year 2 with a subset of previous and a set of new recipients.

Overall, the response rate is not affected by treatments, that is, the share of recipients who de­cide to give is very similar between treatments. The data shows that donors give less when their beliefs about a second period of fundraising are shifted upwards (crowding out) but also that they give more in the second period if they gave more in the first period (persistence in giving). Hence, the results are in line with a behavioral adaptation of the simple expected utility model that (i) accounts for habit formation and (ii) assumes repeated donations are substitutes.

The main findings have implications for both philan­thropy theory and for practical fundraising purposes. For practical purposes, it is clear that the design of an initial campaign must carefully take future plans into account.

The study Giving Once, Giving Twice: A Two-Period Field Experiment on Intertemporal Crowding in Charitable Giving was recently published in the Journal of Public Economics.

We thank Katharina Dorn for support in preparing the summary.