Altruism in charitable givings

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Public Economics

Altruism in

Charitable Givings

Name: Stephanie van Löben Sels Student number: 0120421

Thesis supervisor: dr. K. Abbink

Second reader: prof. dr. A.J.H.C. Schram Economics

Faculty of Economics and Business University of Amsterdam

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1 Stephanie van Löben Sels

Brouwersgracht 1-3sous 1015 GA Amsterdam 0031-6-45358855 Dr. K. Abbink Roetersstraat 11 1018 WB Amsterdam University of Amsterdam

Prof. dr. A.J.H.C. Schram Roetersstraat 11

1018 WB Amsterdam University of Amsterdam

Abstract

In this paper I will investigate whether charitable donations are in nature selfish. In testing this theory, the distinction between pure altruism, impure altruism and the warm glow effect is made. An experiment with two different lottery treatments is used to test whether donations are motivated by altruism or by a warm glow. The experiment exists of two different parts. The first part of the experiment consists of an interview. The purpose of this interview is to investigate the value individuals award to different charitable organisations. The second part of the experiment consists of two treatments, namely a lottery treatment and a lottery treatment where part of the collected money is donated to a certain charity. To test the motives for giving, the number of lottery tickets sold during a change in the connected charitable organisation is investigated.

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Introduction

Combining fundraising with charities has proven to be a successful combination for quite some years now. The most well-known organisation in the Netherlands combining those two, ‘De Postcodeloterij’, has donated 217 million euros to charities in 2006 alone and over 2, 3 billion euros in total (1990-2006). The 4.322.219 individuals who

possessed a winning lottery ticket last year received in total an amount of 151 million euros.1 The concept of combining the two seems to be very popular. However, one can wonder whether these high contributions are a result of altruism (making someone else better off without gaining anything yourself) or the interest individuals have in winning money.

Tim Harford, The Undercover Economist, wrote an interesting column in Slate magazine. In his column, Harford claims that charity is selfish. Harford uses several arguments to prove his claim. First he uses data from the Johns Hopkins Comparative Nonprofit Sector Project to show that charitable giving in the United States was 1.85 percent of GDP in recent years. This was only 0.84 percent in the United Kingdom and as little as 0.13 percent in Germany. According to Harford, this means that Americans are more than 98 percent selfish.2

If individuals are really altruistic, there would be much less volunteering according to Harford. If the individuals volunteering were really motivated by doing good, they would work overtime in stead of volunteering. It would almost always be more effective to work overtime, volunteer less and contribute the extra income to a charitable organisation.

Harford uses a door-to-door experiment by List to show that it appears to be much more effective to raise funds by selling lottery tickets than by asking for money. If the fundraisers were attractive white females, contributions went up significantly in comparison to less attractive male and female fundraisers.

The fourth argument Harford uses is that those organising fund raising drives tend to be disproportionately real estate agents, insurance brokers, car dealers and other people with something to sell.

The final argument Harford uses is that when individuals have the ability to hand out 100 dollar, they divide the amount instead of giving the total amount to one

1_{Data collected from the annual report from the Postcodeloterij of 2006} 2

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cause. According to Harford, this scattershot approach proves that we are more interested in feeling good than doing good.

One can wonder how seriously we should take the column written by Harford. However, he raises an interesting point. Is charity in fact selfish?

In this paper I will investigate whether charitable donations are in nature selfish. In testing this theory, the distinction between pure altruism, impure altruism and the warm glow effect is made. With warm glow, the contributions are not expected to change with the quality of the charity. Individuals are more interested in the warm glow they receive from giving than in the true value a charitable organization has for society. Individuals are expected to donate a similar percentage of their wealth to charities which received different ratings of perceived value for society under the assumption of warm glow. Under the assumption of altruism, contributions to lotteries with connected charitable organisations are expected to change with the perceived value of the organisation. Individuals truly care about what happens with their donation and are not just interested in the warm glow effect that they receive from donating. Under the assumption of impure altruism, an individual’s decision to contribute is influenced by both altruistic motives as well as a feeling of warm glow from giving.

In the next section of my paper I will provide previous research on the subject. There has been much previous research on the subject. This is however the first experiment where both organisations with positive as well as negative perceived value for society are used to investigate the motives of charitable giving.

In the third section of this paper a theoretical model is given on which I will base my experiment. The model is based on the model of impure altruism by Andreoni and on the theoretical framework of the paper by Landry et al. (2006).

In section IV, the experimental design will be described. The experiment consists of two different parts, namely an interview and the actual experiment. In the interview

participants are asked to rate different charitable organisations. During the second part of the experiment, individuals have to decide how many tickets to buy in two different lottery treatments. The regular lottery treatment is the control treatment to compare the

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results of the second treatment with. To test the hypothesis that charitable giving is a result of a warm glow effect and not of altruism, different organisations are linked to the lottery in the second treatment. By comparing the contributions to the lottery connected to different organisations and the ratings individuals award to these organisation, I will investigate whether charitable givings are in fact caused by a warm glow individuals receive instead of altruistic preferences.

Since the experiment will not be conducted, there will be no experimental results. The expected outcome will be covered in section V. The discussion will cover mostly the experimental design and the expected outcome as well as the discussion on the validity of the experiment.

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Previous research

Altruism is first used by the philosopher August Comte (1798-1857), derived from the Latin word “alter” (an other). Comte used the word in the meaning of

unselfishness in contrast to the much older word selfishness. Nietzsche’s judgement on altruism is that it is an unnatural and self-destructive ideal. He believes that a culture in which altruism, happiness, pity, equality, Kantian respect for persons, utilitarianism, etc., prevails as morality, the conditions for the realization of human excellence will be eliminated.

Thomas Nagel (1970), a famous philosopher defined altruism as “not abject self-sacrifice, but merely a willingness to act in the consideration of the interest of other persons, without the need of ulterior motives.”

Altruism has many different definitions within an economic framework. The difference in opinion on what altruism stands for has mostly to do with whether receiving a warm glow from a donation makes this donation less altruistic.

The difference in opinion on the definition of altruism has led to interesting critical commentary on papers concerning altruism. In 2003 Khalil published ‘What is Altruism’, a paper on the true definition of the word altruism. In this paper he defines altruism as charity. According to Khalil, the act of charity can find an accommodation in the ‘homo economicus’ house of neoclassical economists. Khalid criticizes three rationalistic theories of altruism, namely the egoistic perspective, the egocentric view and the altercentric view and three normative theories of altruism, namely the Kantian theory, the socialization argument and the ‘warm glow’ story. The paper ends with three implications of altruism qua charity.

In the egoistic perspective, best expressed in the work of Axelrod (1984), altruistic assistance is provided if the donor expects future benefits. Khalil claims that this is never the case in a single-spot exchange. The egocentric view (Becker, 1974), the donors utility function includes the utility function of potential recipients, can explain the altruistic behaviour in the single-spot exchange. The egocentric approach explains the single spot exchange in terms of pleasure that a donor derives from imagining the joy of the potential recipients happening to his own person. Khalil states that the inability of the egocentric view to distinguish between altruism and masochism may lead to absurd results. A donor is ready to suffer disutility in order to induce an offsetting pleasure when he watches the pleasure of the recipient. The altercentric

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perspective views the benefactor’s actions as stemming from a personality trait that arises from artificial selection.

The Kantian theory expresses the idea that humans should not treat others as means to their own benefit. According to Khalil, Kantian theorists are not able to distinguish between altruism and honesty. According to the socialization/culteralization account, agents tend to act in a particular way to gain the approval of a particular peer group. The ‘warm glow’ story could, according to Khalil, also be explained as a by-product feeling. It presupposes the accomplishment of what one considers being worthy of pride.

The three implications: rationality (the altruistic act is rational, but not self-oriented), parental care (altruism should not be confused with parental care) and honesty (altruism should be distinguished from honesty), clearly state the opinion of Khalil. The critical commentaries by Walker (2003), Wilkinson (2003) and Lunt (2003) as a reply to the paper by Khalil show that there is a lot of controversy concerning this subject.

Walker claimed that whilst Khalil laid down the edge pieces of the puzzle, he left the middle open. By isolating altruism from many concepts and theories which have been used in the past to explain it, Khalil has created a vacuum that needs to be filled. In the critical commentary written by Lunt (2003) on the paper by Khalil, Lunt claims that altruism is a complex concept that picks out a range of phenomena which can not be captured by a single unifying theory.

The definition of pure altruism used in this paper is doing something for the benefit of others without receiving any benefit from this action. Warm glow can be a by-product of giving; this however should in no way influence the decision on how much to donate to a particular charitable organisation. Warm glow is defined by

Andreoni (1989, 1990) as the utility one gets from the act of giving without any concern for the interest of others. This definition is used in this paper.

Some argue that altruism is not possible, even if it is desirable, and that our ethics must be based on egoism. The rational man as portrayed by neo-Classical micro-economic theory, the homo micro-economicus, is not compatible with the concept of altruism. Any rational agent would free ride when it comes to charitable givings. Charitable givings are, however, often explained as being a result of altruism. (Walker, 2003)

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A paper by Olsen (1965) states that people are sometimes motivated by a desire to win prestige, respect, friendship and other social and psychological objectives when deciding whether or not to contribute to a public good.

In 1974, Becker published a paper on the theory of social interaction. He focuses on the distribution of family income among members by the ‘head’ of a family. This head is not defined by sex or age but as that member who transfers general purchasing power to all other members of the family. Social income, the central concept of the analysis, is the sum of a person’s own income plus the monetary value to him of the relevant characteristics of others. Becker claims that the utility function is the same for both the head as well as the other members since his concern for the welfare of other members are incorporated in a consistent family utility function.

Andreoni published a considerable amount of papers on the subject of altruism in charitable donations. In 1988, Andreoni wrote a paper in which he claims that there are limits of altruism. The results of this experiment suggest that the model of altruism fails to explain even the broadest empirical observations about charity.

Andreoni (1989, 1990) developed a model of giving in which altruism is not “pure”. He claims that there may be many other factors influencing charitable donations other than altruism. Social pressure, guilt, sympathy or simply a desire for a warm glow may also play an important role in the decision of agents to donate. Because of these seemingly selfish motives, Andreoni calls his model a model of impure altruism. The impure altruism model is capable of explaining empirical regularities that pure altruism can not explain.

In ‘Giving with Impure Altruism: Applications to Charity and Ricardian

Equivalence’, Andreoni developed a model in which there are two reasons for donating to a public good, namely people demand more from the public good (altruism) and people receive some benefit from their gift. Andreoni investigates whether a change in tax method will influence the average donation of the two reasons differently. The conclusion made in this paper is that if we believe that givers are motivated largely by the notion of altruism, the difference between changing from taxing the giver to taxing a nongiver may be substantial. However, the relative difference between taxing the giver and taxing the nongiver is quite small when we assume that people are largely

motivated by warm glow.

In ‘Altruism in Anonymous Dictator Games’, Eckel and Grossman (1995)

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the allocation of a fixed pie by student subjects. The subject participates in a dictator game in which the dictator has to divide $10 between himself/herself and a recipient. The experiment consists of two treatments. In the first treatment both the recipient as well as the dictator is anonymous. In the second treatment, the recipient is replaced by a charity. The results showed that in treatment 1, 62,5 % kept the entire amount to

themselves whilst this was only 27,1 % in treatment 2. Five subjects even donated their entire endowment to the recipient in treatment 2 whilst this never happened in treatment 1.

In ‘Mixed Feelings: Theories and Evidence of Warm Glow and Altruism’, Konow tests the competing theories of Altruism, including pure altruism (a preference of the wellbeing of others), warm glow (feeling good about giving) and impure altruism (a combination of pure altruism and warm glow). The paper presents experiments that test the competing conjectures regarding crowding out. Konow proposes a theory of conditional altruism that extends them to incorporate social norms. The results suggest that crowding out is partial. Giving is not motivated by pure altruism or warm glow alone.

In ‘Financing Public Goods by Means of Lotteries’, Morgan (2000) finds that relative to voluntary contributions, wagers in the unique lottery equilibrium increases the provision of the public good, is welfare improving and provides levels of the public good close to first-best as the lottery prize increases.

Lange (2005) presents a two-step mechanism for the voluntary provision of public goods based on charitable lotteries. Agents first decide on donating money (prizes) to a charity. These prizes will then be used in a lottery treatment to solicit contributions to a public good. The two-step mechanism procedure can reduce the free-rider problem that usually occurs in public good provision games.

Landry et al. (2006) developed a theory and executed a door-to-door field experiment to explore the economics of charity. The underlying framework includes an extension of the impure altruism model by Andreoni (1988-1990), since contributors might experience a warm-glow effect due to the actual interaction between solicitors and solicitees.

The experiment is a door-to-door fundraising solicitation with four different treatments, namely a voluntary contributions mechanism, the VCM, with and without seed money, a fixed-prize lottery with a single cash prize ($1000 once) or a fixed-prize

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lottery with multiple cash prizes (four times $250). With the help of questionnaires (on measures of assertiveness, sociability, etc) and personal attractiveness rankings done by independent observers, the solicitors are ranked in attractiveness and confidence.

The writers expect average individual contributions to go up under the lottery-treatment in comparison with the VCM-lottery-treatment. The attractiveness- and confidence levels of the solicitors are also expected to have a positive effect on the contribution levels.

The results of the door-to-door fundraising indicate that gross proceeds in both lottery treatments are larger than proceeds in both the VCM treatments. This is due to increased participation as well as slightly higher average contributions in the lottery treatments. The physically attractive female solicitors raise more money than their peers due to increased participation.

In ‘Charity ends with the Lottery’, Mark Peacock claims that the lottery discriminates against those wishing to give to charity in the traditional way. By altering the structure of the decision to give through the introduction of a reward for giving, altruism is eroding. There are two ways of supporting a charity, by direct donations and by

participating in a lottery that supports charities. Charitable institutions exist for the sake of helping others while the lottery exists for the sake of winning money, according to Peacock. The fact that money is transferred to charity via the lottery is merely an external side effect.

Peacock claims that the lottery is becoming a dis-enabling device in the sphere of active citizenship because people come to expect the State to channel funds to charities via lotteries. Evidence shows that since 1994 there has been a significant decline in direct donations. This fact shows how susceptible altruistic sentiments are to added sacrifices such as the foregone chance to win money.

The lottery creates the institutional conditions for the applicability of economic scepticism towards altruism. Lottery players might appear to be altruistic. However, considering the other benefits of playing leaves room for scepticism towards altruism.

One can wonder whether the experiment is really interesting. Does it really matter whether individuals who donate to charity are in fact motivated by a warm glow or by altruistic motives? This does in fact matter. Individuals motivated by a warm glow will

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need different advertisement to trigger contributions in comparison with altruistic individuals.

Lotteries are an ideal way to attract individuals motivated by a warm glow. These lotteries are often supporting more than one charitable organisation. Because more individuals will benefit from the donation of this individual, the warm glow feeling will be more intense.

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Theoretical model

To predict the outcome of the experiment constructed in this paper a theoretical model has been developed. The model is based on the model of impure altruism by Andreoni and on the theoretical framework of the paper by Landry et al. (2006). Both treatments, namely the lottery treatment and the lottery treatment with a connected charitable organisation, are discussed.

Lottery treatment

The lottery treatment consists of a single prize lottery. Subjects receive an endowment of w. This endowment is to be spend either on a private good (y ) or on lottery tickets _i (b ) which leads to the budget constraint of_i y_i +b_i ≤w. The probability L

i

π of winning the prizeP depends on all agents contributions. Since there is a zero probability of L winning if subjects do not contribute, the free-rider problem is not an issue in this treatment. The expected utility of an agent for the optimal contribution level is given by

) ( ) 1 ( ) ( _i L _iL _i L i L i u w b P u w b EU =π − + + −π −

Maximizing the equation above leads to the first –order condition for the optimal contribution level:

[

( ) ( )] '( ) (1 ) '( ) 0 _i L _i _iL _i L _iL _i i L i b w u P b w u b w u P b w u b − + − − − − + − − − ∂ ∂ = π π π

Contributions to the lottery depend on the level of risk aversion. Individuals with a high level of risk aversion will spend their entire endowment on y while individuals who _i are less risk averse will probably spend a portion of their endowment onb . _i

The optimal contribution to the lottery depends on theπ , the probability of _iL winning and the height of the prize.

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Lottery treatment with a connected charity

The lottery treatment with a connected charity consists of a single prize lottery. The profits of the lottery, a certain percentage of the earnings of the sold lottery tickets, will be donated to a preannounced charitable organisation.

Subjects receive the same endowment as in the treatment above. This

endowment can be spend either on a private good (y ) or on lottery tickets (_i b ) which _i leads to the budget constraint ofy_i +b_i ≤w. The probability π of winning the prize_iL P L depends on all agents contributions. Since there is a zero probability of winning if subjects do not contribute, the free-rider problem is not an issue in this treatment. The expected utility of an agent for the optimal contribution level is given by

) ( ) ( ) 1 ( ) ( _i L _iL _i _i L i L i u w b P u w b f b EU =π − + + −π − +γ ,

Maximizing the equation above leads to the first-order condition for the optimal contribution level of:

). ( ' ) ( ' ) 1 ( ) ( ' )] ( ) ( [ 0 _i L _i _iL _i L _iL _i _i i L i b f b w u P b w u b w u P b w u b π π γ π ₋ ₊ ₋ ₋ ₋ ₋ ₊ ₋ ₋ ₋ ₊ ∂ ∂ =

The difference in the first order conditions of the lottery treatment and the lottery treatment with part charity isγf

( )

b_i .

Implications of the theoretical model

Under the assumption of pure altruism, γf

( )

bi would be zero. Individuals do not receive

utility from charitable donations. The difficulty with altruism is that contributions are hard to predict. Under pure altruism, the first-order conditions of the expected utility of both treatments are equal. This would suggest that the outcome of both treatments would be equal. However, previous research has provided us with evidence to the contrary. Eckel and Grossman found that a significant increase in donations occurs when the extent to which a donation goes to a recipient generally agreed to be “deserving” increases.

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Under the assumption of warm glow, individuals receive utility from donating to a certain charitable organisation. This is visible in the expected utility function of an agent for the optimal contribution level. The optimal contribution level of an agent is

explained by ( ) (1 ) ( i) ( i) L i L i L i L i u w b P u w b f b EU =π − + + −π − +γ . Contributions to the lottery treatment with a connected charitable organisation are motivated by the

opportunity of winning a prize as well as the warm glow effect. This warm glow effect is indicated byγf

( )

b_i .

With impure altruism, individuals are motivated by both warm glow as well as altruism. The optimal contribution level of an agent is explained by

) ( ) ( ) 1 ( ) ( _i L _iL _i _i L i L i u w b P u w b f b

EU =π − + + −π − +γ , the probability of winning a prize, altruism and a warm glow.

Expected donations

Altruistic individuals have different motivations for giving in comparison with individuals who are motivated by warm glow. Altruistic individuals are motivated by the perceived value a particular organisation has for society.

) ( i ct b

B =λ ,

where λ is the perceived value of a particular organisation and b the maximum i

amount individuals are able to donate to charities. The amount will be multiplied by the perceived value of the organisation. The value of λ lies between 0 and 1.

Individuals motivated by a warm glow will depend their donation on the warm glow received from donations and will be less interested in the perceived value of a certain organisation.

) ( i ct b

B =γ ,

A decline in perceived value of a particular organisation does not influence the behaviour of an individual motivated by warm glow.

In case of an impure altruist, the individual is motivated by both the perceived value of an organisation as well as warm glow, λ(b_i) andγf

( )

b_i .

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where α is the percentage on which the donated amount is dependent on the perceived value of a particular charitable organisation. In case of impure altruists, a decline in perceived value will change the amount donated to this particular charity. The

difference with pure altruistic behaviour is that individuals are motivated by more than just the perceived value of a charitable organisation.

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Experimental design

To test the theoretical model, the following experiment has been composed. The experiment exists of two different parts.

The first part of the experiment consists of a survey. The purpose of this interview is to investigate the value individuals award to different charitable organisations. In the survey, individuals are asked to rate fifteen different carefully chosen organisations to their liking. The second part of the experiment consists of two treatments, namely a lottery treatment and a lottery treatment where part of the collected money is donated to a certain charity. To test the motives for giving, the number of lottery tickets sold during a change in the connected charitable organisation is investigated.

The experiment is executed at the University of Amsterdam. For the first part of the experiment a minimum of 300 undergraduate students from various subject areas are needed. A total of 240 undergraduate students are asked to take part in the second part of the experiment. Only students who have participated in courses containing elements of game theory are not allowed to enter. The reason for this exclusion is that students who followed courses containing elements of game theory alter the actual outcome of the experiment by the use of strategic behaviour to achieve the best possible outcome.

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Part I

The first part of the experiment consists of a survey. The purpose of this survey is to investigate the value individuals award to different charitable organizations. In the survey, individuals are asked to rate different organizations to their liking.

Subjects

Different subjects are used for both parts of the experiment. The average response is used to examine the research question in the second part of the experiment. The reason for using different subjects is that subjects may change their behaviour during the second part of the experiment if they are aware what the experiment is trying to test.

In the first part of the experiment, the identity of the individuals remains

anonymous. Individuals may alter their response when the survey is not anonymous. An individual may be reluctant to openly admit supporting the actions and ideas of the Ku Klux Klan. To assure that subjects do not alter their response for social desirability, anonymity is necessary.

Since the answers of the subjects in the first part of the experiment will be used to examine the responses of the subject in the second part of the experiment, it is

preferable to use the same demographic group in both parts of the experiment. Students of the University of Amsterdam are used in both parts of the experiment as subjects.

Survey

The survey takes place on the University of Amsterdam, in classrooms just before lectures begin. I choose not to execute the interviews via email since the response rate will be very low and there will be a certain amount of self selection. With mail surveys it may be difficult to know who actually responded. With personal interviews, there is a reasonable chance of knowing who you are speaking with.

Subjects are not allowed to communicate when participating in the first part of the experiment. This prevents subjects to respond with the most socially desirable answer. Controversial organisations should be avoided since the responses can vary significantly.

The list of organisations consists of different charitable organisations that are active within a variety of areas. The goals of the chosen organizations are explained on the question sheet of the survey for subjects who are not familiar with certain organizations.

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The following charitable organizations3 are chosen:

1. Amnesty International: Amnesty International is a worldwide movement of people who campaign for internationally recognized human rights for all. The organization works to improve human rights through campaigning and

international solidarity.

2. C.O.C.: The C.O.C. is the oldest still existing organization for homosexual men and lesbian women in the world. Since its foundation, COC has been

instrumental in bringing about considerable social and legal changes for gays and lesbians in the Netherlands and abroad.

3. Doctors without borders: Doctors Without Borders/Médecins Sans Frontières (MSF) is an independent international medical humanitarian organization that delivers emergency aid to people affected by armed conflicts, epidemics, natural or man-made disasters, or exclusion from health care in more than 70 countries.

4. Family Watch International: Family Watch International promotes family based solutions to world problems. A few believes of the organization are that

traditional marriage is essential for a healthy society, same sex marriage as well as same sex parenting should be illegal and that pornography can destroy families.

5. Federation against Cursing: The Federation against Cursing is an organization that aims at respectful linguistic usage without cursing.The organization was founded in 1917, when a group of Christians, concerned about blasphemy and swearing in society, decided to combat this sinful trend with the teaching of the Bible.

6. Habitat for Humanity: Habitat for Humanity (HFH) is a non-denominational Christian charity dedicated to eliminating poverty housing worldwide. Since the

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founding in 1976, Habitat for Humanity has become a global leader in

addressing substandard housing by helping more than 1.000.000 people of all races, faiths and backgrounds to have a simple decent place to live.

7. IFAW: The IFAW, the International Fund for Animal Welfare, is a Canadian organization that focuses on the wellbeing of animals around the world. The organization focuses on both pets as well as animals living in the wild.

8. International Muslim Brotherhood, Inc.: The Brotherhood is a multi-national Sunni Islamist movement and the worlds largest, most influential political Islamist group. The International Muslim Brotherhood was established in 1949 by Imam Nasir Ahmed. The Brotherhood has been described as both unjustly oppressed and dangerously violent.

9. International Organization for Migration: The IOM, the International Organization for Migration, is committed to the principle that humane and orderly migration benefits both migrants and the whole of society. The organisation addresses a variety of migration issues in the Netherlands including the transportation of people to and from the Netherlands,

(re)integration, combating human trafficking, labour migration, migration and development and migration and health.

10. NARTH: NARTH stands for the National Association for Research & Therapy of Homosexuality. NARTH is a non-profit, educational organization dedicated to affirming a complementary, male-female model of gender and sexuality. NARTHs primary goal is to create effective psychological therapy available to all homosexual men and women. NARTH believes that individuals are not born with a ´gay gene´ but that the sexual identity is shaped by biological,

psychological and social factors.

11. Orange Babies: Orange Babies is an organization with the primary goal to help HIV-infected women and their babies. Orange Babies collects money to provide pregnant women with medicine to ensure that their babies will not be infected with the virus.

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12. PNVD: The PNVD is a controversial Dutch political party. The organization believes that individuals should be free to choose whether they would like to discriminate, smoke, integrate etc.. The PNVD also believes that this should apply to children. Children should have the freedom to have sex, vote, gamble etc..

13. Prince Bernhard Culture Fund: Organization that stimulates culture and environmental preservation in the Netherlands. The organization encourages special initiatives and talent by awarding financial contributions, prices and scholarships.

14. The Knights of the Ku Klux Klan: This political organization promotes white Christian civilization and gives honour to their ancestors who founded essential ingredients for a civilized and moral society. The Knights hope to become and maintain the leadership of the white racialist movement. Some of the items on the Knights party platform are for instance to stop all foreign aid immediately, to abolish all discriminatory affirmative action programs, to actively promote love and appreciation of the unique European (white) culture and to place all persons who are HIV infected into national hospitals to stop the spread of the disease.

15. WR60: A foundation with the primary goal to preserve one of the oldest ships in the Netherlands, ”Het Blazertje”. The ship is built around 1840 in Medemblik. The WR60 is the oldest ship of the brown fleet which is still sailing.

In the survey, individuals are asked to rate different organisations to their liking. The choice to rate organizations in stead of ranking them is made in order to prevent interdependencies between organizations.

Subjects are allowed to assign ratings between -10, extreme dislike, and 10, extreme like. If subjects are neutral towards the organisation, they should award 0 points to this particular organization. The reason subjects can also award negative points to the organisation is because these individuals might have negative feelings regarding the goals of a certain organisation. For instance, they might like to curse while they are

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conversating. This could be a reason to appoint a negative amount of points to the Federation against Cursing.

It is best to choose the organizations with the lowest deviation in answers since the responses in the second part of the experiment will be compared with the average

response in the first part. A higher deviation in the first part of the experiment will cause noise in the final results.

The information on how to contribute to the organisation mentioned above is given at the end of the paper. For most of the organizations, a bank account number is given. For the remaining organizations, an address is given to send donations to by mail.

Implications part I

After collecting the responses in the first part of the experiment, it is possible to calculate which of the above mentioned organizations receives the highest and lowest ratings. To test my hypotheses, I will choose four organizations which will be connected to a lottery during the experiment. These four organisations will be the organizations receiving the most negative average response, the most positive average response, a mildly positive average response and a mildly negative average response. Organizations which receive low deviation in their responses are preferred over organizations with higher deviations in their received responses.

The organizations that I expect to be perceived as positive are Amnesty International, Doctors Without Borders, Habitat for Humanity, the IFAW and Orange Babies. The mildly positive perceived organizations are probably going to be the COC, the Federation against Cursing, the Prince Bernhard Culture Fund and the WR60. The organizations that I expect to be perceived as negative are Family Watch International, International Muslim Brotherhood, International Organization for Migration, NARTH, the PNVD and the Knights of the Ku Klux Klan.

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21 Survey charitable organisations

Please read the following instructions carefully.

Below, fifteen organizations are posted. We are interested in how you perceive the following organizations. You are allowed to assign ratings between -10, extreme dislike, and 10, extreme like. If you are neutral towards the organization, you should award 0 points to this particular organization. If you do not know a particular organization please read the submitted explanation carefully.

Good luck!

1 Amnesty International: Amnesty International is a worldwide movement of people

who campaign for internationally recognized human rights for all. The organization works to improve human rights through campaigning and international solidarity. Are you familiar with this particular organisation?

○ yes ○ no

What rating would you award this particular organisation?

2. C.O.C.: The C.O.C. is the oldest still existing organization for homosexual men and

lesbian women in the world. Since its foundation, COC has been instrumental in bringing about considerable social and legal changes for gays and lesbians in the Netherlands and abroad.

Are you familiar with this particular organisation? ○ yes ○ no

3. Doctors without borders: Doctors Without Borders/Médecins Sans Frontières (MSF)

is an independent international medical humanitarian organization that delivers emergency aid to people affected by armed conflicts, epidemics, natural or man-made disasters, or exclusion from health care in more than 70 countries.

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4. Family Watch International: Family Watch International promotes family based

solutions to world problems. A few believes of the organization are that traditional marriage is essential for a healthy society, same sex marriage as well as same sex parenting should be illegal and that pornography can destroy families.

5. Federation against Cursing: The Federation against Cursing is an organisation that

aims at respectful linguistic usage without cursing.The organization was founded in 1917, when a group of Christians, concerned about blasphemy and swearing in society, decided to combat this sinful trend with the teaching of the Bible.

6. Habitat for Humanity: Habitat for Humanity (HFH) is a non-denominational

Christian charity dedicated to eliminating poverty housing worldwide. Since the founding in 1976, Habitat for Humanity has become a global leader in addressing substandard housing by helping more than 1.000.000 people of all races, faiths and backgrounds to have a simple decent place to live.

Are you familiar with this particular organisation? ○ yes ○ no -10 -8 -6 -4 -2 0 2 4 6 8 10 ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ -10 -8 -6 -4 -2 0 2 4 6 8 10 ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ -10 -8 -6 -4 -2 0 2 4 6 8 10 ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

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7. IFAW: The IFAW, the International Fund for Animal Welfare, is a Canadian

organization that focuses on the wellbeing of animals around the world. The organization focuses on both pets as well as animals living in the wild. Are you familiar with this particular organisation?

○ yes ○ no

8. International Muslim Brotherhood, Inc.: The Brotherhood is a multi-national

Sunni Islamist movement and the worlds largest, most influential political Islamist group. The International Muslim Brotherhood was established in 1949 by Imam Nasir Ahmed. The Brotherhood has been described as both unjustly oppressed and

dangerously violent.

9. International Organization for Migration: The IOM, the International

Organization for Migration, is committed to the principle that humane and orderly migration benefits both migrants and the whole of society. The organization addresses a variety of migration issues in the Netherlands including the transportation of people to and from the Netherlands, (re)integration, combating human trafficking, labour

migration, migration and development and migration and health. Are you familiar with this particular organisation?

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10. NARTH: NARTH stands for the National Association for Research & Therapy of

Homosexuality. NARTH is a non-profit, educational organization dedicated to affirming a complementary, male-female model of gender and sexuality. NARTHs primary goal is to create effective psychological therapy available to all homosexual men and women. NARTH believes that individuals are not born with a ´gay gene´ but that the sexual identity is shaped by biological, psychological and social factors. Are you familiar with this particular organisation?

○ yes ○ no

11. Orange Babies: Orange Babies is an organization with the primary goal to help

HIV-infected women and their babies. Orange Babies collects money to provide pregnant women with medicine to ensure that their babies will not be infected with the virus.

12. PNVD: The PNVD is a controversial Dutch political party. The organization

believes that individuals should be free to choose whether they would like to

discriminate, smoke, integrate etc.. The PNVD also believes that this should apply to children. Children should have the freedom to have sex, vote, gamble etc..

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13. Prince Bernhard Culture Fund: Organization that stimulates culture and

environmental preservation in the Netherlands. The organization encourages special initiatives and talent by awarding financial contributions, prices and scholarships. Are you familiar with this particular organisation?

○ yes ○ no

14. The Knights of the Ku Klux Klan: This political organization promotes white

Christian civilization and gives honour to their ancestors who founded essential

ingredients for a civilized and moral society. The Knights hope to become and maintain the leadership of the white racialist movement. Some of the items on the Knights party platform are for instance to stop all foreign aid immediately, to abolish all

discriminatory affirmative action programs, to actively promote love and appreciation of the unique European (white) culture and to place all persons who are HIV infected into national hospitals to stop the spread of the disease.

15. WR60: A foundation with the primary goal to preserve one of the oldest ships in the

Netherlands, ”Het Blazertje”. The ship is built around 1840 in Medemblik. The WR60 is the oldest ship of the brown fleet which is still sailing.

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Thank you very much for participating.

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Part II

The second part of the experiment consists of two treatments, namely a lottery treatment and a lottery treatment where part of the collected money is donated to a certain charity. The Experiment will be executed at the University of Amsterdam.

Subjects receive the instruction sheet five minutes before these subjects have to decide how many lottery tickets they want to purchase. These five minutes should be more than sufficient to read the instruction sheet carefully and make a well thought decision. During the first stage of the experiment, subjects have to decide on the number of lottery tickets they want to purchase. During the second stage of the experiment, the winning lottery ticket is drawn by hand.

Subjects

In total, 15 sessions are executed with 300 different subjects. For both the first as well as the second part of the experiment, students of the University of Amsterdam are used. This is a key part in linking both experiments. Only by the use of a similar demographic group can part I be used to investigate the responses in part II.

During each session, 20 subjects participate. These twenty subjects participate in only one treatment. This is to prevent subjects from being influenced by the visible change in treatment. If subjects signal the change in treatment, they may alter their response. A visible change in charitable organisations may cause subjects to change their behaviour.

Partitions are placed in a manner that the individuals participating in the

experiment are not able to communicate. Individuals are less pressured to respond with socially desirable answers.

Prize

Each subject receives an endowment of 8 euro’s. This endowment can be spent either on lottery tickets,x , or on private consumption, _i y . The total number of tickets sold _i during a session is expressed in x. The cost of one lottery ticket is equal to 2.

Individuals have the choice to buy between 0 and 4 lottery tickets.

During each session, a single prize can be won by one of the subjects. In both treatments, this prize is constructed by 1.5 times the number of tickets sold. The 50

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cents difference between the cost of a ticket and 1.5 is donated to the selected charitable organisation in the lottery treatment with a connected charity. During the lottery

treatment, this difference is used to finance part of the experiment.

The reason I did not use a fixed prize for lottery winners is because individuals may expect contribution to go up with the lottery treatment with a connected charitable organisation. During a treatment using a fixed prize, higher contributions will lead to lower expected outcome.

0 ) * ( < ∆ ↑⇒ P x x x i

When individuals expect the contributions to go up in a fixed prize lottery treatment, they will lower their contributions. When the lottery is connected to an organization with a negative perceived value for society, individuals might expect contributions to be small to zero. The chance of winning P increases when

contributions are low. With a variable prize, low contributions leads to a low prize. The incentive to donate in case of low contributions is therefore not present with a variable prize. In case of a variable prize, the rise in donation will have no effect on the expected outcome. 0 )) 5 . 1 * ( * ( = ∆ ↑⇒ x x x x i

A rational individual understands that buying lottery tickets will decrease their expected return. By not buying any lottery tickets, individuals maximize their return.

) 2 * ( 1 ) 5 . 1 ) 2 * (( w x x x n x w x x ER= i − + + − i − .

To ensure that lottery tickets are sold during the experiment, participating subjects should not be too risk averse. The payoff percentage of 75 will probably be sufficient to ensure donations since subject participating in the experiment will be less risk averse.

To test whether the 1.5 pay-off parameter, a pay-off percentage of 75, is effective, a pilot session is performed to test whether individuals will contribute. If the pay-off parameter is too low, individuals might not contribute at all because of too low expected results. If no individuals contribute during the pilot session, the parameter should go up.

The pay-off percentages used in the largest lotteries in the Netherlands are 35 % for ‘De Postcodeloterij’, 33.7% for ‘De Bankgiro loterij’ and 60.12% for ‘De

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Staatsloterij’ in the year 2006. The first two lotteries have connected charitable organizations, the last one is a lottery without connected organisations. Since

individuals participate in these lotteries, one can expect that individuals will buy tickets during the experiment with a pay-off percentage of 75.

The money will be donated to the charitable organizations after the entire experiment is completed. It is important to stress to participants that the money will in fact be donated. Subjects may alter their response if they do not think the money will be transferred.

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Lottery treatment

Treatment I

You participate in a lottery treatment. You are able to buy lottery ticket to have a chance of winning a prize. Each group consists of 8 subjects. Each subject receives 8 euros endowment. This endowment can either be spent on lottery tickets or private

consumption. The prize of the lottery is constructed as the number of tickets sold times 1.5. Only individuals who bought tickets have a chance of winning the prize.

• During the first stage of the session, each subject decides how much lottery tickets her/she wishes to acquire. The cost of a lottery ticket is 2 euros which means that individuals can choose to buy 0, 1, 2, 3 or 4 lottery tickets.

• The winning lottery ticket is drawn during the second stage of the experiment. The result is announced at the end of the experiment.

You are not allowed to communicate with other subject during the experiment.

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Lottery treatment with connected charitable organization

Treatment II

You participate in a lottery treatment. The lottery is constructed to raise money for the charitable organization who is introduced on the next page.

Please read the introduction on the next page now

You are able to buy lottery ticket to have a chance of winning a prize. Each group consists of 8 subjects. Each subject receives 8 euros endowment. This endowment can either be spent on lottery tickets or private consumption. The prize of the lottery is constructed as the number of tickets sold times 1.5. Of every lottery ticket sold, 50 cents will go to the charitable organization introduced on the next page.

Only individuals who bought tickets have a chance of winning the prize.

• During the first stage of the session, each subject decides how much lottery tickets her/she wishes to acquire. The cost of a lottery ticket is 2 euros which means that individuals can choose to buy 0, 1, 2, 3 or 4 lottery tickets.

• The winning lottery ticket is drawn during the second stage of the experiment. The result is announced at the end of the experiment.

You are not allowed to communicate with other subject during the experiment. The money will be transferred to the selected charitable organization after all sessions of the experiment are completed.

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Expected outcome

I expect contributions to go up when the lottery is connected to a charitable organisation which is perceived to have a positive effect on the wellbeing of others in comparison with the lottery treatment. As can be seen in the theoretical model, the difference between the two treatments in terms of utility maximization isγf

( )

b_i , the warm glow.

The paper by Eckel and Grossman (1995) shows that donations to a recipient in a dictator game go up significantly when the anonymous recipient is replaced by a charitable organisation. Eckel and Grossman used the American Red Cross as charitable organization which can be considered to have a positive effect on the wellbeing of others.

The table below represents the results from this experiment. In treatment 1, 30 of the 48 subjects kept the entire amount. Another 14 subjects kept more then 50%. In the second treatment, only 13 of the 48 subjects kept the entire amount to themselves. Five subjects even donated the entire amount to the American Red Cross.

Table 1

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The distribution of both treatments has been tested for significant differences using the Epps-Singleton test. This test is a nonparametric test designed to distinguish between different sample distributions. The test statistic for the differences between the anonymous treatment versus the charity treatment 13.09, with a p-value of 0.01.

Table II

Source: Eckel and Grossman (1995)

Because there is little research based on lottery treatments where the connected

charitable organization varies, the expected results on that part of the experiment will be based on theoretical knowledge.

The subject responds either purely altruistically, impurely altruistically or as a result of warm glow. Pure altruistic behaviour suggests that subjects change their behaviour even with a minor change in perceived value between charities. A slight decline in perceived value results in a change in donations by pure altruists. When the connected charitable organization has a negative perceived value, individuals driven by altruistic motives will not contribute since altruistic individuals want to avoid doing harm. This assumption follows the main trait of altruism, doing good.

Impure altruists are expected to change their behaviour with a large

increase/decrease in the perceived value a certain organization has for the wellbeing of others. The individuals who are driven by a warm glow are not expected to change their behaviour with a change in case of a large change in the perceived value.

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Only when the charitable organization is perceived to have a large negative effect on the wellbeing of others, I expect that the individual driven by a warm glow will change his/her contribution. Due to common sense, individuals who are driven by a warm glow will lower their contributions to an organisation with a large negative perceived value such as the Knights of the Ku Klux Klan. The warm glow effect will disappear when individuals realize that their contribution will cause great harm to other individuals.

Because I expect individuals to be motivated by warm glow with charitable donations, I expect that a change in the organization (with a different perceived value) linked to the lottery treatment will not significantly change the contributions made to the lottery.

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Discussion

The major issue in investigating whether altruism truly exists in donations to charitable organizations is the definition of altruism. Altruism has been described in previous research in many different ways. Khalil described altruism as charity. He claimed that even with warm glow, a donation can still be considered altruistic. This warm glow is simply a by-product. Konow claimed that pure altruism can not be unified with warm glow. In case individuals receive a warm glow from giving, people are considered to act as impure altruists. Andreoni (1989, 1990) claimed that altruism is not “pure”. He claims that there may be many other factors influencing charitable donations other than altruism. Social pressure, guilt, sympathy or simply a desire for a warm glow, people derive some utility from the act of giving, may also play an important role in the decision of agents to donate.

One can wonder if pure altruism really exists. Do not all individuals, performing an act of kindness, receive a feeling of warm glow? And if so, does receiving a warm glow from giving diminishes the altruistic motives behind the donation? The definition of altruism used in this paper is that altruistic behaviour could have a warm glow as by product. This however, should in no way influence the decision for contributing. By investigating the impact of a change in organization which is connected to the lottery, it will be possible to distinguish the different motivations to give.

It is difficult to investigate the sincerity of the responses giving in the first part of the experiment. The first part of the experiment is executed before lectures begin at the University of Amsterdam. Students may alter their response to fit social desirable answers. Another change in response might be to shock or impress fellow students, by awarding high ratings to organizations which are normally considered to have a negative perceived value for society. A large number of subjects will decrease the impact these individuals have on average ratings.

Because the answers giving in the first part of the experiment are used to examine the answers giving in the second part of the experiment, it is important to use the same demographic group. In both parts, students are used. However, the selection of participants in the first part of the experiment is different from the second part of the experiment. In the first part, students who attend classes are used as subjects. In the

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second part, students have to make an effort to participate in the experiment which means that they either love participating in experiments or they need the earnings. The difference between subject groups could cause different responses. I believe that this difference will be very small and can be neglected.

The lottery prize is constructed in a way that for every bought lottery ticket, 1.50 euros will be added to the prize money. A rational individual understands that buying lottery tickets will decrease his/her expected return. By not buying any lottery tickets,

individuals maximize their return. Risk adverse individuals will be reluctant to buy lottery tickets. This however is not a real problem since I look at the change in the number of lottery tickets bought in each treatment.

In a paper by Morgan (2000), pari-mutuel lotteries, where the prize is

determined as a percentage of the total bets, are shown to do no better than voluntary contributions in providing a public good. However, with quasi-linear preferences, the fixed-prize lottery provides more of the public good than the voluntary contributions. The reason I did not choose a fixed-prize lottery is that I am not interested in the total amount that is contributed but in the change in amount.

Since the proceeds of the treatments will in fact be donated to the selected charitable organizations, the feasibility of the experiment is questionable. If, for instance, the Knights of the Ku Klux Klan is selected to be one of the connected organizations, the possibility exists that money will have to be transferred to this organization. This can cause moral objection against the experiment. The experiment might be more

acceptable by excluding the organizations with a large negative perceived value for society. However, this results in less interesting experimental results. Since there probably will be money transferred to organizations with a positive perceived value, this could be seen as compensation.

The previous research by Peacock mentioned earlier in this paper shows us how susceptible altruistic sentiments are to added sacrifices such as the foregone chance to win money. By altering the structure of the decision to give through the introduction of a reward for giving, altruism is eroding. Lotteries do not seem to disappear soon which makes it interesting to investigate lottery treatments with connected charitable

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are no experimental results it is not possible to discuss the results. Maybe it is possible to execute a similar or altered experiment.

An interesting future research paper might be to investigate what best triggers donations from individuals who are motivated by a warm glow. Lotteries with connected charitable organizations may want to explore what kind of advertisement will trigger the highest donations.

If lotteries are an effective way to attract those individuals motivated by a warm glow, it may be an interesting idea to organize a global lottery to support UN development activities. This idea dates back to the 1970s. In 2001, the global volume of lottery sales was around 126 billion dollars. Half of these 126 billion dollars was transferred to winning players. The other half was distributed between administration costs (about 20 percent) and the contributions to charitable organizations. This would only leave limited revenues to finance the Millennium Development Goals of the UN. The global lottery may also face political opposition, if it is expected to crowd out money from national charities. This can negatively affect the beneficiaries of the national charities, who very often support socially important institutions at the national level. (Hofer et. Al., 2005)

Raising funds for charitable organizations through lotteries remains an interesting concept. Whether or not altruism is eroding because of it remains to be seen, however since individuals give only a very small percentage of their income to charitable organizations this will have less impact than expected. If the loss in direct donations can be covered by donations through lotteries, the existence of lotteries with connected charitable organizations will cause no problems.

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Andreoni, J., (1989), “Giving with Impure Altruism: Applications to Charity and Ricardian Equivalence,” Journal of Political Economy 97, pp 1447-1458

Andreoni, J., (June 1990), “Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving,” The Economic Journal, Vol. 100, No. 401., pp. 464-477.

Andreoni, J., (February 1995), “Warm-Glow Versus Cold-Prickle: The Effects of Positive and Negative Framing on Cooperation in Experiments,” The Quarterly Journal of Economics, Vol. 110, No. 1, pp. 1-21

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Harbaugh, W., (1998), “What do Donations Buy?: A Model of Philanthropy Based on Prestige and Warm Glow,” Journal of Public Economics, 67, pp 269-284

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Hartog, J., Ferrer-i-Carbonell, A. and Jonker N., (2000), “On a Simple Measure of Individual Risk Aversion,” Tinbergen Institute Discussion Paper, University of Amsterdam, pp 1-22

Hofer, W. (SDC), Gerster, R. & Jenni, R., (Gerster Consulting), (March 2005), “New Sources Of Development Financing: An SDC Working Paper,” Swiss Agency for Development and Cooperation (SDC), Berne, pp 1-60

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