SPI Working Paper Series





WP #: 004

Date: Dec 2014


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The Hidden Benefits of Control: Evidence from a Natural Field Experiment

    Craig E. Landry, Andreas Lange, John A. List, Michael K. Price, Nicholas G. Rupp

    East Carolina University
    University of Hamburg
    University of Chicago, NBER
    University of Tennessee
    East Carolina University


Abstract:
An important dialogue between theorists and experimentalists over the past few decades has raised the study of the interaction of psychological and economic incentives from academic curiosity to a bona fide academic field. One recent area of study within this genre that has sparked interest and debate revolves around the "hidden costs" of conditional incentives. This study overlays randomization on a naturally-occurring environment in a series of temporally-linked field experiments to advance our understanding of the economics of charity and test if such "costs" exist in the field. This approach permits us to examine why people initially give to charities, and what factors keep them committed to the cause. Several key findings emerge. First, there are hidden benefits of conditional incentives that would have gone undetected had we maintained a static theory and an experimental design that focused on short run substitution effects rather than dynamic interactions. Second, we can reject the pure altruism model of giving. Third, we find that public good provision is maximized in both the short and long run by using conditional, rather than unconditional, incentives.


SPI Quick Look:
This study develops theory and conducts an experiment to provide an understanding of why people initially give to charities, why they remain committed to the cause, and what factors attenuate these influences. Using an experimental design that links donations across distinct treatments separated in time, results show that previous donors are more likely to give, and contribute more, than donors asked to contribute for the first time. Yet, how these previous donors are acquired is critical: agents who are initially attracted by signals of charitable quality transmitted via an economic mechanism, such as announcing seed money, using matching grants, or using lotteries or auctions, are much more likely to continue giving than agents who were initially attracted by non-mechanism factors.