Contributions in heterogeneous communities: Evidence from Indonesia

Abstract

Using household-level data from Indonesia, we investigate the importance of community characteristics: ethnic diversity and central government transfers, inter alia, in determining monetary and time contributions to community organizations. We present a framework in which ethnic diversity affects contributions through three channels: (1) diversity of preferences (2) transaction costs, and (3) inter-household considerations in the form of altruism towards one’s ethnic group. Our empirical findings provide evidence that ethnic diversity has a negative and significant effect on contributions, and the prevalence of community organizations. We find evidence that government spending crowds out private monetary contributions, with a less robust effect on time contributions.