The price of warm glow

Abstract

This paper presents a model and experimental evidence to explain the “volunteering puzzle” where agents prefer volunteering time to donating money when monetary donations are, ceteris paribus, more efficient for providing resources to charity. In the model agents receive heterogeneous utility from pure and impure altruism (Andreoni, 1989) that permits warm glow to vary between monetary donations and volunteering, thus allowing preferences for impure altruism to rationalize inefficient allocation decisions. We define a measure of the price of impure altruism as the additional proportion of income contributed by a donor to give in the dimension that maximizes her utility, holding the overall charitable contribution constant. To test the predictions of the model we ran an experiment in which we varied within-subjects the costs and benefits of monetary and volunteer donations. We also varied between-subjects the emphasis on either the donation value to the charity (pure altruism) or the contribution of the donor (impure warm-glow altruism). Consistent with the model's predictions, the experiment shows that framing the donation decision from a pure perspective increases the efficiency of donation choices, the substitutability of donations between money and time, and crowding out. Nonetheless, while greater impurity results in a more inefficient allocation of resources, empirically we find that it increases overall charitable donations. We discuss the implications of our experimental results for both theory and policy.