Tuesday, December 3, 2013

3/12/2013: State Grants or Private Donations Incentives?

Should charities be directly (grant) funded by the Government (Ireland's core policy toward funding charities) or should they rely on raising funding, with the Government supplying a channel for private funding via (tax) incentives to individual donors?

I am not a researcher in this area, but here's an interesting study on the topic: Scharf, Kimberley A., Impure Prosocial Motivation in Charity Provision: Warm-Glow Charities and Implications for Public Funding (November 2013). CEPR Discussion Paper No. DP9749.
Available at SSRN: http://ssrn.com/abstract=2356979

Abstract: We show that warm-glow motives in provision by competing suppliers can lead to inefficient charity selection. In these situations, discretionary donor choices can promote efficient charity selection even when provision outcomes are non-verifiable. Government funding arrangements, on the other hand, face verification constraints that make them less flexible relative to private donations. Switching from direct grants to government subsidies for private donations can thus produce a positive pro-competitive effect on charity selection, raising the value of charity provision per dollar of funding.

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