Truth in Giving: Experimental Evidence on the Welfare Effects of Informed Giving to the Poor

Truth in Giving: Experimental Evidence on the Welfare Effects of Informed Giving to the PoorA Study by Fong & Oberholzer-Gee, 2011

Julia Rechlitz | Experimental and Behavioral Economics | 17.06.2013

Motivation• Individuals prefer to support recipients, who are not personal responsible for their

predicament (e.g. people with physical disability)

• Information about the background of needy people can affect how generous a

donation is

Leads to the research question:

„ Are ind iv idua ls w i l l i ng to pay fo r in fo rmat ion tha t a l lows them to ach ieve a p re fe rs

d is t r ibu t ion o f income and what a re the e f fec ts? “

• Therefore decisions in the context of costly endogenous information are examined

Julia Rechlitz | Experimental and Behavioral Economics | 17.06.2013Seite 2

Experimental Design I - Participants of the experiment

• The experiment is set up as a laboratory standard dictator game

• Students from Carnegie Mellon University and University of Pittsburgh were asked to

be part of the experiment as proposer

• Real-life welfare recipients, living in public houses in Pittsburgh, were asked to attend

to the group of responder

• In a prior survey, they were asked about their background and grouped by their

self-assessment

• Here two groups were set up: people with physical disability and people

consuming drugs and alcohol


Experimental Design II – Different Treatments

Main Treatment: • Dictators know they are randomly paired with a „low-income public housing resident

and that both groups (disability and drugs) are of equal size

• They have the possibility to play a $10 dictator game without further information or

pay $1 to learn about their recipient and allocate the $9 after

Control Treatments:• Subjects have an endowment of $10 and receive the type of the recipient for free

• Subjects have an endowment of $10 and get no further information

• Subjects have an endowment of $9 and receive the type of the recipient for free


Results I


Results II


Results III






Results IV


Conclusion

• A group of donors is willing to pay for information to achive a distribution of income

that comes close to ist preferences

• If information are given, the recipients of the preferd group receive more

• If information are endogenious, all types of recipients are worse off

• The marginal effect of knowing that the recipient is a disable person is positiv,

independelty if information are given or have to be bourght


Relevance of the Study

• The results of the study have implications for governments and NGOs that try to increase the financial and political support for transfer programs

• Desirable: Donors receive free information indicating their recipient is disable• Information is costly• Recipients are heterogeneous Credible signals of deservedness are needed

• Example: U.S. Social Security program• Entitlement program in which transfers are tied to prior earnings of the recipient


References

• Fong, Christina, and Felix Oberholzer-Gee (2011). "Truth in Giving: Experimental Evidence on the Welfare Effects of informed Giving to the Poor." Journal of Public Economics 95, 5-6, 436-444.


Documents

Truth in Giving: Experimental Evidence on the Welfare Effects of Informed Giving to the Poor