On the Desirability of Taxing Charitable Contributions

conspicuous consumption of private goods¹, Glazer and Konrad (1996) explain that
there are good reasons to believe in a strong signaling motive for charity. They argue
that conspicuous consumption, unlike charity, may be banned by social norms. They
also point out that ownership of luxury goods may be difficult to observe reliably. In
contrast, donations can prove very effective in conveying signals to individuals
belonging to a peer group, who can not observe the big house or the luxury car (such
as the case of distant college roommates who read the alma mater's alumni magazine
and notice the recent contribution of their peers.).

Glazer and Konrad (1996) cite empirical evidence in support of the hypothesis
that donations are not purely driven by altruistic motives. One such evidence is that
only a tiny fraction of donations is given anonymously. For instance, the fall 1991
Yale Law Report, sent to the alumni of the Yale Law School, indicates that only 4 out
of 1950 donors were anonymous. Furthermore, when donations are reported in broad
categories, rather than the exact amounts given, people tend to 'converge' to the lower
limit of the specified category. For instance, the 1993-4 report of the Harvard Law-
School Fund indicates that contributions of exactly $500 constitute 93 percent of total
amount raised in the category $500-$999.

Harbaugh (1998b) employs a theoretical model of the donor's optimization
problem in Harbaugh (1998a), and uses data on reported donations of a prestigious
law school alumni from the same cohort, to identify the status effect associated with
donations ("prestige motive"). His estimation results indicate that many donors would
more that double their donations in response to the prestige motive.²

¹ Hirsch (1976) refers to those consumption goods used to signal status as 'positional goods'.

² Notably, a change in the category reporting plan of the university, which occurred during the period
examined, resulted in a reduction in the number of donations at the omitted categories. This result is
consistent with a prestige motive hypothesis.

<<   1   2   3   4   5   6   7   >>

More intriguing information