The public phase of a capital campaign is typically launched with the announcement of a large seed donation. Andreoni (1998) argues that such a fundraising strategy may be particularly effective when funds are being raised for projects that have fixed production costs. The reason is that when there are fixed costs of production simultaneous giving may result in both positive and zero provision equilibria. Thus absent announcements donors may get stuck in an equilibrium that fails to provide a desirable public project. Andreoni (1998) demonstrates that such inferior outcomes can be eliminated when the fundraiser initially secures a sufficiently large seed donation. We investigate this model experimentally to determine whether announcements of seed money eliminate the inefficiencies that may result under fixed costs and simultaneous provision. To assess the strength of the theory we examine the effect of announcements in both the presence and absence of fixed costs. Our findings are supportive of the theory for sufficiently high fixed costs.
Bibliographical noteFunding Information:
We thank the National Science Foundation , the University of Pittsburgh , and the Mellon Foundation for financial support. Bracha thanks the University of Pittsburgh for its hospitality. For helpful comments we thank Marco Castillo and Ragan Petrie as well as participants at the 2009 conference, “Current State of Philanthropy” (Middlebury College), the 2009 International Economic Science Association conference (George Mason University), the 2009 conference, “Individual Decision-Making: A Behavioral Approach” (Tel Aviv University), and the Stanford Institute for Theoretical Economics Summer 2009 Workshop on Experimental Economics. We thank Leeat Yariv for proposing the title.
- Charitable giving
- Public goods
- Seed money
- Sequential giving