A Closer Look at Philanthropy-Who Gives and Why?

PITTSBURGH-Whether writing a check to our favorite charity or dropping a few dollars into the Salvation Army kettle, December is the time of year many make a charitable contribution. Earlier this year, the Red Cross and other agencies were flooded with donations following Hurricane Katrina and the Indian Ocean tsunami. But what prompts people to donate? Does it help if a person of high status gives first? And are men or women more benevolent?

During the past year, University of Pittsburgh Professor of Economics Lise Vesterlund has researched charitable giving to better understand the motivations behind donations. Her study, "The Effect of Status on Charitable Giving," shows that when a person of high status gives first to a specific charity, others are apt to follow. In addition to helping to establish that the charity is reputable, a famous donor can help elicit other acts of generosity.

"The standard theory would be that if a well-known philanthropist gave first, people would think they wouldn't have to give. But what we're seeing instead is that if a renowned individual has given up front, it can trigger a lot of subsequent contributions. This actually gives high-status donors a greater incentive to give first, because they know their contributions will get everyone else going," says Vesterlund.

In a study conducted in Pitt's Experimental Economics Laboratory, which can be configured to run a wide variety of computerized experiments in carefully controlled economic environments, Vesterlund divided Pitt students into what she called a high-status group and a low-status group. When those in the low-status group donated first, they didn't give much, and the high-status group that followed with a donation gave even less. But when those in the high-status group gave first, they gave a larger amount, and contributions from the low-status group almost doubled. "In our study, the net effect is that total contributions increase by more than 80 percent when high-status participants contributed first," says Vesterlund. "It's not that members of the high-status group are generally more generous. They're only generous if they contribute first."

Interestingly, gender can also influence an individual's charitable giving. In a study titled "Which Is the Fair Sex? Gender Differences in Altruism" (Quarterly Journal of Economics, 2001), Vesterlund examined whether men or women tended to be more charitable. She found that the answer to this question depended on how costly it is to give. When giving impacts the donor more, then women tend to be more generous than men. When the donation "costs" the giver less, then men are more generous. While women tend to donate the same fraction of their income independent of the impact, men reduce this fraction as the "cost" increases.

Such gender difference in giving carries over to tipping. Examining restaurant data collected by researchers at Cornell University, Pitt researchers found that when it is inexpensive to tip, men are more generous. But when it cost more to tip, they hold back. Women, on the other hand, stick close to the recommended 15-20 percent tip.

"A man can have a $3 drink and leave a $2 tip," says Vesterlund. "But for a $200 dinner for two, he'll tip less than 15-percent. Whereas women tend to calculate their tips the same, no matter what the bill."

Vesterlund says these studies show that fundraisers can benefit from using sequential solicitation strategies and that it is optimal for them to first solicit those who hold a higher social ranking. She says they also suggest, from a practical viewpoint, that organizations will tend to see different responses to changing tax rates and laws, depending on the gender makeup of their donor base. Charitable contributions are tax deductible, but the "cost" of giving to a charity increases as the marginal tax rate decreases. Therefore, organizations that have primarily a female donor base will tend to see a smaller variation in their contributions than those whose donor base is primarily male.

"The study suggests that while male donors respond more to information on tax deductions, female givers may be more responsive to information on, for example, the organization's mission. However, both women and men will respond to information on the price of giving (tax rate or matching contributions)-it is just that the men respond more," she says.

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11/30/05/tmw