SPI Working Paper Series
The Effects of Seed Money and Refunds on Charitable Giving: Experimental Evidence from a University Capital Campaign
This paper was published in Journal of Political Economy in 2000
John List, David Lucking-Reiley
University of Central Florida
Vanderbilt University
Abstract:
We test two recent theories on the subject of charitable fundraising in capital campaigns. Andreoni (1998) predicts that publicly announced seed contributions can increase the total amount of charitable giving in a capital campaign. Bagnoli and Lipman (1989) predict that another technique for increasing contributions is a promise to refund donors’ money in case the campaign threshold is not reached. Using a field experiment in a capital campaign for the Center for Environmental Policy Analysis at the University of Central Florida, we present evidence on both of these predictions. Data from direct mail solicitations sent to 3000 Central Floridian residents confirm the basic comparative-static predictions of both theories: total contributions increase with the amount of seed money, and with the use of a refund policy. A change in seed money from 10% to 67% of the campaign goal resulted in nearly a sixfold increase in contributions, while imposing a refund increased contributions by a more modest 20%. Seed money has a statistically significant effect on both the proportion of people choosing to donate and on the average gift size of those who donate, while refunds have a statistically significant effect only on the average gift size. These results have clear implications for practitioners in the design of fundraising campaigns.
SPI Quick Look:
The paper tests the effect of two fundraising mechanisms: seed money (fundraisers announce that a certain percentage of the money needed has already been raised among large donors) and refunds (fundraisers announce that donors will receive their gifts back if the fundraising goal is not met). Results show that total contributions increase with the amount of seed money, and with the use of a refund policy. A change in seed money from 10% to 67% of the campaign goal results in nearly a sixfold increase in contributions, while imposing a refund increases contributions by a more modest 20%. Seed money has a statistically significant effect on both the proportion of people choosing to donate and on the average gift size of those who donate, while refunds have a statistically significant effect only on the average gift size.
