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 Poor A 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 individuals willing to pay for information that allows them to achieve a prefers distribution of income and what are the effects?“ • Therefore decisions in the context of costly endogenous information are examined Julia Rechlitz | Experimental and Behavioral Economics | 17.06.2013

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 Julia Rechlitz | Experimental and Behavioral Economics | 17.06.2013

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 Julia Rechlitz | Experimental and Behavioral Economics | 17.06.2013

Results I Julia Rechlitz | Experimental and Behavioral Economics | 17.06.2013

Results II Julia Rechlitz | Experimental and Behavioral Economics | 17.06.2013

Results III Julia Rechlitz | Experimental and Behavioral Economics | 17.06.2013

Julia Rechlitz | Experimental and Behavioral Economics | 17.06.2013

Results IV Julia Rechlitz | Experimental and Behavioral Economics | 17.06.2013

Conclusion • A groupofdonorsiswillingtopayforinformationtoachive a distributionofincomethatcomescloseto ist preferences • Ifinformationaregiven, therecipientsofthepreferdgroupreceivemore • Ifinformationareendogenious, all typesofrecipientsareworseoff • The marginal effectofknowingthattherecipientis a disablepersonis positiv, independeltyifinformationaregivenorhavetobebourght Julia Rechlitz | Experimental and Behavioral Economics | 17.06.2013

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 Julia Rechlitz | Experimental and Behavioral Economics | 17.06.2013

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. Julia Rechlitz | Experimental and Behavioral Economics | 17.06.2013

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