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IntroductionIn the late 1990s, washerwoman Oseola McCarty created a trust stating that upon her death, a portion of her lifetime savings will be given to the University of Southern Mississippi to provide scholarship to deserving students. It is said that the trust amounted $150,000. Last year, 2014, Angelina Jolie donated five million dollars to a foundation that supports several humanitarian projects. In the same year, Warren Buffet donated $2.8 billion to Bill and Melinda Gates Foundation and several other charities. These acts are examples of charity giving. The practice of charity is the voluntary giving of help to those in need as a humanitarian act. The help can be in the form of goods, time, and of course, money. Most people are actually cheerful givers although not on the same scale as the personalities mentioned in the first paragraph. In the United Kingdom in the year 2010/2011, for example, the UK Giving Survey reported approximately fifty- eight percent of adults donated to charity amounting to an estimated 11 billion. In 2003, more than $240 billion, exceeding two percent of US GDP, was contributed to American philanthropic organizations. Also, according to Giving USA Foundation, Americans gave an estimated $248.5 billion to charity in 2004. The government also plays a role in charity giving. It is an active partner of private donors in raising funds for charity. The government gives direct grants to charities. Aside from that, the government spends money for charity through tax exclusion or exemptions. The income spent on charitable donations is excluded from income tax. Charity giving has had great impacts on a nations economy. Its market worldwide is enormous. Many people allocate portion of their money for charities but only few know the motivation behind such acts. Economists have found an answer to know what motivates people to give. Thus, the purpose of this study is to determine the economics behind charity giving. This will describe how economists think about philanthropic acts and charity giving. This study will be mostly focused on individuals rather than corporations. Motivations as to why individuals give a portion of their hard-earned money will be tackled and Behavioural Economics will help in knowing these motivations and the economics behind charity giving.Statement of the ProblemBased on standard economic theory, people are driven by an interest in maximizing their own utility. Thus, people should not give money to charity unless they get something from it or doing such pays off. However, many people are into charity giving. They allocate portions of the money they worked hard for to charities. This is in contrast to many economic models. To know more about the economics behind charity, this research aims to answer the following questions:1. Who are the people who give to charity and where do they give to?2. What motivates people to give to charity?3. What is the price of giving?4. How does the cost of giving affect its trends and patterns?Objectives of the StudyThe main objective of this study is to determine the economics behind charity giving. The specific objectives of the study are the following:1. To know and analyze why people give to charity2. To identify who gives to charity and where they give to3. To determine what people who gives get from charity giving

MethodsThe data used in this paper were gathered through library research. Thus, all data are based on secondary or existing data and information. The data were gathered from different sources, both hard copies and soft copies. Most data were collected from online sources. These online sources include online articles, online dictionaries and encyclopaedia and Portable Document Format (PDF) files although a book from the library was also used for the data gathering. No actual interviews and surveys were conducted for this paper.

Results and Discussion Total Giving has been increasing for four straight years since 2010. As seen in Figure 1, in 2013, an increase of 4.4 percent was recorded in the total giving compared to the total giving in 2012. This statistics implies that a number of people are participating in charity giving. However, only few understand the motives behind such acts. Economic models are suggesting that people make decisions that will maximize their own utility and are bound to self-interest. But the data gathered will give answers to the question of motivation and other questions asked in the first part of this paper.Figure 1. Trend of Total Giving in the US (1973-2013)Source: Giving USA 2014 report

Motivations of GivingAccording to Clotfelter (2002), Economic Theorists have suggested four basic reasons to explain the charity giving. These reasons are (1) actual material return, (2) warm glow, (3) Altruism, and (4) a reason not based on utility maximization but on belief and morality. Actual Material ReturnThe first reason to giving is the because of the actual material return individuals gets from giving. Individuals may be getting something in exchange for their contributions and donations which are directly from the charity. People give because of the tangible benefits they get from doing charity. Marketing advantages or reduced labour costs are examples of tangible benefits. Thank-you gifts are also examples of tangible benefits individuals get from charity giving. Donors to Operas may get better seats, for example, or buildings in universities will be named after the donor. There are also those who get tokens like mugs in exchange for the contributions. This is the first motivation as to why people give to charity they get something tangible in return for their contributions.Warm-GlowThe second reason to giving is because of the so-called warm-glow. The warm-glow is the pleasure that donors get from the act of making gifts and giving. It is a core economic motivation for giving. According to Andreoni (1989) as cited by Mulligan (2001), individuals get some internal satisfaction warm-glow from giving to their favoured charity, and the more they give the better they feel. This would imply that giving to charity is like buying any good like yogurt, ice cream, hamburgers or steak. Most of us would accept the assumption that there are people who naturally like ice cream, or yogurt. There are those who have natural taste for hamburgers or steak. With this assumption, we can say that it is also possible for individuals to have natural taste for warm-glow and if we accept such assumption, charity giving can be treated like other goods consumed by people. When income goes up, people would want more of the good, in this case, charity giving but if the prices go up, they would want less. People also give although their contributions may be anonymous. Due to the warm-glow effect, individuals would prefer that gifts and donations would come from themselves. Clotfelter (2002) revealed that donors would prefer to be a contributor of a cause than not to be, even if the same total amount would have been donated in the absence of his or her contributions. AltruismAltruism is helping that is intended to provide aid to someone else without expectation of any reward other than the good feeling that may result (Delameter & Myers, 2007, p. 275) Individuals donate because they are genuinely selfish and concerned about the well-being of others ( Sham, 2013). Because of altruism, donors benefit when the recipients are better-off.In altruism, there are individuals who are considered to be purely altruistic. These individuals donate because they value the social good done by the charity they choose to help. Other individuals can also be considered as impurely altruistic. These individuals donate because they extract value just by knowing they have contributed something for the charitys good. There are also those who are not-at-all altruistic. These are the ones who donate to show off their wealth. They feel good doing such acts.

Belief and Morality When it comes to giving, economist must allow for the possibility that some charitable acts do not make the giver or donor better off in any useful sense. The donors instead proceed out of a higher order set of beliefs and morality (Clotfelter, 2002).

Who Gives to CharityCharitable donations may come from different sources. They may come from individuals, charitable foundations, or through bequests or the act of giving property by will. Among these sources, studies show that a greater percentage of charitable donations come from individuals. According to the 2014 Report of Giving USA, seventy-two percent of the total giving came from individuals rather than corporations, foundations, and bequests. The distribution of donations is summarized in Figure 2. Figure 2. Distribution of Sources in Giving to Non-Profits in America Source: Giving USA 2014

Based on the UK Giving 2014 Report, eight out of ten people participated in charity giving and other social activities. This is around seventy-nine percent. Based on the same study, women are more likely to give and get involved in charitable giving than men. Forty-eight percent of those who have directly donated or sponsored are women while forty-one percent are men. Individuals aged between sixteen and twenty-four are the least likely to participate in charity giving. Those who are older and in higher economic status are the individuals most likely to sponsor, donate, and do charity. Table 1 shows that the more income a household has, the more likely they are to give to charity and the more it gives when it decides to donate. It also shows that those with lowest incomes give over four percent of their incomes and as incomes grow to $ 50,000 donations fall to 1.3 percent of the income, but rises again to 3.4 percent in the highest incomes. This is probably due to the thinking of young people that their wages will increase in the future and they can afford to donate more at the moment. Aside from income, there is also a difference in the giving of an individual based on age and their education. As shown in Table 1, as people get older, they are typically likely to give and allocate greater amount of their incomes than the younger ones. Likewise, individuals with higher educational attainment typically give more often, give more money, and give greater fraction of their income.

Table 1. Individual/ Private Giving by income, age, and education of the giver, 1995Source: Mulligan (2001)

Where People Give ToIndividuals dont just decide whether to give or not, what to give and how much to give. They also decide where they will donate their moneys to. Individuals decide where to give. In the US, for example, people decide whether to give to religion, education, health, environment, animals, arts, and humanities. Figure 3 summarizes the proportion of giving by type of recipient organization or sector.

Figure 3. Proportion of the total amount donated by cause or sector Source: US Giving 2014 report

As seen in Figure 3, giving to religion has the greatest proportion of thirty-one percent n the United States and the least at one percent is giving or gifts to individuals. In the United Kingdom, on the other hand, people give more to medical cause. Other causes include animals, children, hospitals, homeless, schools, sports, and entertainment among others. The proportion of donors and donations in the UK is summarized in Figure 4.Source: The Moscow Times (2015)

Price of Giving Charitable donations can be deducted from taxable income. If an individual who gives would itemize his donations, tax deductions would be given. This would imply that the richest individuals, who have the highest marginal tax rate, have the greatest incentive to give and donate because they face the lowest marginal cost of giving (Hernndez-Murillo & Roisman, 2005). For example, an individual facing a marginal tax rate of fifteen percent donates $100 and itemizes this contribution, this person would save $15 in taxes and the net cost of giving would be $85. Likewise, when a person with a marginal tax rate of twenty-five percent donates $100, he would save $25 of tax. The $25 is paid by the government in taxes forgone. The net cost of the donation would be $75. This would imply that the higher tax rate of an individual, the lower net cost of giving. The tax rates acts as subsidy rate to giving. Those in higher tax brackets get bigger subsidies.The Cost of Giving and its Impact to the Trends in Giving In consuming products like steak, an increase in the price of the product can cause a decrease in consumption. We can say that if there are changes in the tax policies, the net ocst of giving may change and can affect giving itself. Assuming that policies would only allow a donor to deduct seventy percent of his contribution rather than a hundred percent, this would mean that his contributions net cost would increase. For someone in the twenty-eight percent marginal tax rate bracket, the cost would increase from $72 to $80 (Mulligan, 2001). Consequently, a study was conducted to know how responsive giving is to the incentives given by tax deduction. In the study, if the government decides to pay an additional ten percent of the cost of giving, this would mean more incentives for giving, and if the person responds by giving thirteen percent more, more new charities are generated by the government. In summary, people are very sensitive to charitable deduction in the tax system.ConclusionCharity Giving has been a significant part of a nations economy. Billions of dollars (US) and pounds (UK) are summed from giving. Standard economic theory may suggest that people are bounded by self-interest and would opt to make decisions that would benefit them, thus, giving would be an irrational act. Questions as to why people give came up. However, behavioural economics blossomed to give an answer to such questions. People are motivated to give because of the actual material return they get from giving, the internal satisfaction or warm-glow they feel, the altruistic side of them, and maybe because of their beliefs and morality. Individuals are the biggest source of giving and for the US, most individuals give to religions while in UK, most people give to medical causes. The females, older people, and those in higher economic standing are the most likely to give often and give more. Charitable donations can also be deducted from income tax. Because of this, people have greater incentives of giving. However, when there are changes in tax policy and a change in charitable deduction happens, giving trends of people also change. Individuals are sensitive to charitable deductions.RecommendationsFurther research should be done on the economics of charity especially on subsidy and giving since policies and preferences may change with time. New studies are always needed for the assessment of the impact of deductions on giving. It is also recommended that the youth of today should be encouraged to donate to charities as they are the future donors. Charities can encourage people to give regularly by communicating the positive impact of public donations. People should also continuously be aware of the various ways of giving. Definitely, charity giving plays a significant role in a nations economy. Through these recommendations, the market for charity will benefit. Giving will continue to increase if the recommendations stated above will be put into actions. Also, with further researches and new studies, better understanding of the economics of charity shall be provided.

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