Thursday, March 19, 2009

More on Charity

If you found my earlier post on charity interesting, check out this paper by Scott Beaulier and Josh Hall. They put forward a classical liberal challenge against the view that the free market will under provide charitable giving. In a nutshell, the argument the push against is the idea that if you make a donation to reduce poverty, others can free ride and not donate themselves, thus everyone has an incentive to refrain from donating. Beaulier and Hall point out that:
  1. This argument is in no way consistent with the evidence. The authors point out that charities actually behave as if there are positive network externalities, where the donations of one individual encourage donations from others. Indeed, it is often the case that you see programs where a third party has agreed to match every $1 of private donations with $x of their own. Why would such a strategy work if there is perfect crowding?

  2. The donations of others reflect a change in the "price" of welfare programs, and as such they are pecuniary externalities, not technological externalities generating a market failure.
Enjoy the paper from your armchair.

No comments: