Essays on Private Giving to Public Goods (Altruism, Fund-Raising, Charity, Free-Riding).

Abstract

This dissertation examines the st and ard model of privately provided public goods as it applies to voluntary provision. This work is motivated by the general observation that the predictions of the classic theory seem to be inconsistent with observations about actual levels of private provision. The first essay begins by noting that several researchers have recently uncovered many strong and sometimes incredible implications of the classical (or Samuelsonian) view of privately provided public goods. Can private provision be independent of the distribution of income, joint provision with the government, and tax-deductibility of gifts? All of these have been suggested in the literature. Each, however, is roundly contradicted by empirical studies. There is obviously a piece of the puzzle which economists have missed. The piece suggested in the first essay is Impure Altruism: individuals may gain utility from the act of giving. The resulting model is highly consistent with econometric findings and adds a new dimension to the optimal tax treatment of charity, efficient provision of public goods, intergenerational altruism and the neutrality of public debt. The second essay steps back to ask how well can the classic model of altruism approximate what we observe. Astonishingly, through careful theoretical analysis aided by computer simulation, one sees that the classical model has virtually no predictive power! The free-rider hypothesis is so pervasive as to rob the model of all its interesting insights when applied to voluntary action. Therefore, the Samuelson public goods model cannot be used to explain privately provided public goods. The third and final essay was designed to examine these issues within an experimental framework. The results of the experiments clearly support the arguments made in the previous chapters. Economists need an alternative view of why people make donations to public goods in the face of strong incentives to free ride.