A Theory of Charitable Fund-Raising with Costly Solicitations

摘要

As part of doing business, charities often spend money to raise money. Thus, a careful planning of whom to ask for donations should be paramount for a charity aiming to control its fund-raising costs while maximizing donations. Perhaps this is why the charitable sector has grown to be highly professional and innovative.31 Yet the theory of charitable fund-raising has mostly ignored its cost side. In this article, we take a first stab at filling this void. We fully characterize the optimal fund-raising strategy that can be easily computed from the donors' preferences, incomes, and the solicitation costs. Among other results, we show that costly fund-raising can provide a novel explanation for the nonneutrality of income redistributions and the crowding-out hypothesis often encountered in empirical studies. For future research, it may be worthwhile to consider sequential solicitations where donations are revealed in each visit. Another promising, and perhaps more challenging, direction would be to investigate the competition between charities where donors' responses are fully accounted for.