'Giving' in to Social Pressure

Abstract

In light of recent evidence, we develop a theory of charitable giving in which donors feel social pressure from a direct solicitation. We show that equilibrium donations are concentrated around a social norm: donors below the norm increase giving while those above the norm reduce it. Despite a higher level of the public good, relatively poor and/or low altruism givers fare worse under social pressure and would avoid the solicitor at a cost. Aggregate donor welfare improves to the extent that the added social motive alleviates the underprovision of the public good; however, overprovision may result. Our theory therefore predicts a light-handed regulation for charitable solicitations, which is consistent with their exemption from the popular Do Not Call list in the U.S. We further show that contrary to pure altruism, a more equal income distribution may produce more of the public good. In fundraising campaigns where a social norm is not apparent, one may emerge endogenously if donors are not too heterogeneous. In fact, multiple social norms may form, which offers a focal point argument for suggested donations.