James Andreoni

Giving According to GARP: An Experimental Test of the Consistency of Preferences for Altruism

Subjects in economic laboratory experiments have clearly expressed an interest in behaving unselfishly. They cooperate in prisoners’ dilemma games, they give to public goods, and they leave money on the table when bargaining. While some are tempted to call this behavior irrational, economists should ask if this unselfish and altruistic behavior is indeed self-interested. That is, can subjects’ concerns for altruism or fairness be expressed in the economists’ language of a well-behaved preference ordering? If so, then behavior is consistent and meets our definition of rationality. This paper explores this question by applying the axioms of revealed preference to the altruistic actions of subjects. If subjects adhere to these axioms, such as GARP, then we can infer that a continuous, convex, and monotonic utility function could have generated their choices. This means that an economic model is sufficient to understand the data and that, in fact, altruism is rational. We do this by offering subjects several opportunities to share a surplus with another anonymous subject. However, the costs of sharing and the surplus available vary across decisions. This price and income variation creates budgets for altruistic activity that allow us to test for an underlying preference ordering. We found that subjects exhibit a significant degree of rationally altruistic behavior. Over 98% of our subjects made choices that are consistent with utility maximization. Only a quarter of subjects are selfish money-maximizers, and the rest show varying degrees of altruism. Perhaps most strikingly, almost half of the subjects exhibited behavior that is exactly consistent with one of three standard CES utility functions: perfectly selfish, perfect substitutes, or Leontief. Those with Leontief preferences are always dividing the surplus equally, while those with perfect substitutes preferences give everything away when the price of giving is less than one, but keep everything when the price of giving is greater than one. Using the data on choices, we estimated a population of utility functions and applied these to predict the results of other studies. We found that our results could successfully characterize the outcomes of other studies, indicating still further that altruism can be captured in an economic model.

Why Free Ride? Strategies And Learning In Public Goods Experiments

Abstract Laboratory experiments on free riding have produced mixed results. Free riding is seldom observed with single-shot games; however, it is often approximated in finitely repeated games. There are two prevailing hypothesis for why this is so: strategies and learning. This paper discusses these hypotheses and presents an experiment that examines both.

Privately provided public goods in a large economy: The limits of altruism

Abstract Private charity has often been modelled as a pure public good. The results reported in this paper, however, suggest that this model of altruism fails to confirm even the broadest empirical observations about charity. In particular, as the size of the economy grows, the fraction contributing to the public good diminishes to zero. This and other results imply that this approach leads to a very limited model with little, if any, predictive power. A truly descriptive model of privately provided public goods must be generalized to include other non-altruistic motives for giving.

Public Goods Experiments Without Confidentiality: A Glimpse Into Fund-Raising

Laboratory researchers in economics assiduously protect the confidentiality of subjects. Why? Presumably because they fear that the social consequences of identifying subjects and their choices would significantly alter the economic incentives of the game. But these may be the same social effects that institutions, like charitable fund-raising, are manipulating to help overcome free riding and to promote economic efficiency. We present an experiment that unmasks subjects in a systematic and controlled way. We show that, as intuition suggests, identifying subjects has significant effects. Surprisingly, we found that two supplemental conditions meant to mimic common fund-raising practices actually had the most dramatic influences on behavior. D 2003 Elsevier B.V. All rights reserved.

The Carrot or the Stick: Rewards, Punishments and Cooperation

We examine rewards and punishments in a simple proposer-responder game. The proposer first makes an offer to split a fixed-sized pie. According to the 2×2 design, the responder is or is not given a costly option of increasing or decreasing the proposers payoff. We find substantial demands for both punishments and rewards. While rewards alone have little influence on cooperation, punishments have some. When the two are combined the effect on cooperation is dramatic, suggesting that rewards and punishments are complements in producing cooperation. Providing new insights to what motivates these demands is the surprising finding that the demands for rewards depend on the availability of punishments.

Do Government Grants to Private Charities Crowd Out Giving or Fund-raising?

Economists have long observed that crowding out of government grants to private charities is incomplete. The accepted belief is that givers treat the grants as imperfect substitutes for private giving. We theoretically and empirically investigate a second reason: the strategic response of a charity will be to reduce fund-raising efforts after receiving a grant. Employing panel data from arts and social service organizations, we find that government grants cause significant reductions in fund-raising. This adds a new dimension to the policy discussions - analysts should account for the behavioral responses of the charity, as well as the donors, to government grants.

Charitable Giving by Married Couples: Who Decides and Why Does it Matter?

We examine how charitable giving is influenced by who in the household is primarily responsible for giving decisions. Looking first at single-person households, we find men and women to have significantly different tastes for giving, setting up a potential conflict for married couples. We find that, with respect to total giving, married households tend to resolve these conflicts largely in favor of the husband’s preferences. Bargaining over charitable giving, rather than letting one spouse take charge, is estimated to reduce giving by at least 6 percent. When the woman is the decisionmaker, she will still make a significantly different allocation of those charity dollars, preferring to give to more charities but to give less to each. Our results give new insights into both the demographics of charitable giving and the costliness of household bargaining.

What Makes an Allocation Fair? Some Experimental Evidence

We explore three two-person public goods games with similar equilibrium predictions, but with different rules of the game, different payoff possibilities, and, as we show, different choices by subjects. Comparisons among games allow inferences of what may or may not determine when the equilibrium prediction is a good approximation of actual behavior. We find that the equilibrium prediction can fail even when incentives off the equilibrium enforce it. Our result suggests that the selfish prediction is prone to deviations when the equilibrium results in unequal distributions of payoffs, and there are alternative outcomes that increase both equality and the payoff of the disadvantaged party. Furthermore, fairness is a function of more than just the final allocations to subjects; it depends on the actions not chosen as well as those that are. Journal of Economic Literature Classification Numbers: C92, H41.

The desirability of a permanent tax amnesty

Abstract There are two main concerns about tax amnesty. First, if it is anticipated it may increase cheating and reduce the efficiency of the tax system. Second, amnesty may be inequitable by letting cheaters ‘off the hook’. However, several federal governments currently hold a policy of long-term, or permanent, tax amnesty, in apparent defiance of these concerns. This paper examines fully anticipated tax amnesty and finds that it is possible for a permanent tax amnesty to actually increase, rather than decrease, the efficiency and equity of the tax system.

Altruism in Experiments

Unlike experiments on markets or mechanisms, experiments on altruism are about an individual motive or intention. This raises serious obstacles for research. How do we define an altruistic act, and how do we know altruism when we see it?