Voluntary contributions to united charities

Abstract

If individuals are free to direct their gifts to any charity, why would they contribute instead to an institution like the United Way that may not disburse their donations as they would have themselves? It is shown that ‘contributing only to the United Fund’ can be a Subgame Perfect Equilibrium, if the Fund plays after everyone else and is able to offset direct contributions. However, donations to a United Fund may be lower than direct contributions would have been, so that an optimal grants policy for the United Fund would involve trading off a less desirable mix of services for higher total contributions.