Charities in politics: a reappraisal.

AuthorGalle, Brian
PositionIII. Lobbying Charities or a Subsidy for Lobbying? Economies and Diseconomies of Scope A. Diseconomies 2. Effects on Warm Glow through Conclusion, with footnotes, p. 1596-1632
  1. Effects on Warm Glow

    Another possible, but empirically open, question about political activity by nonprofits is whether it may suppress the personal satisfaction, or "warm glow," of donors and other charitable supporters. Warm glow is an important potential explanation for the success of the nonprofit sector. (171) American voluntary contributions to the purchase of public goods far exceed the amounts that could be explained easily by classic economics or the effect of the deduction. (172) Perhaps donors are "pure" altruists who internalize the well being of others and who would give even if they experienced no rewards for themselves from their gift. A more psychologically realistic alternative is that many of us are "impure" altruists, and we give because being seen as generous carries public esteem and gratitude, sends a signal of wealth and power, makes us feel we are good people, or relieves a sense of moral or social obligation. (173) It is this second set of motives that--following a large social science literature--I describe as warm glow. (174)

    Extensive evidence now points to warm glow as a larger component of the public's reasons for giving than pure altruism. (175) Laboratory and real-world studies both confirm the intuition of fundraising professionals that public acknowledgment of donors increases giving. (176) Another important piece of evidence is donors' response to the news that some other entity has already spent money pursuing the donors' goals. (177) If donors are pure altruists, this news should reduce their own spending, because they should care only about the beneficiaries' welfare. Instead, donors do not reduce much, and in some cases even increase their giving, suggesting that it is important to donors that they be the ones to support the cause. (178) Warm glow motivation by charitable employees seems to lower the salary they demand, and this fact in turn may motivate donors to choose the charitable form as an especially cost-effective tool. (179)

    Returning to politics, we might hypothesize two competing warm glow effects of greatly expanded lobbying activity by charities. One possibility is that introducing politics will result in a kind of brand dilution for the nonprofit sector. I have argued previously that allowing for-profit firms to conduct charitable works would diminish the luster of charity by confusing donors and other observers. (180) Society would no longer be able to easily recognize which organizations were nobly sacrificing gain for the greater good and which were trying to make a buck. Employees who gave up cash rewards in exchange for public recognition of their virtue would find the noncash portions drying up, leading to convergence between nonprofit and for-profit salaries. (181) That, in turn, might lead donors who sought to leverage below-market nonprofit salaries to turn elsewhere.

    One could tell a similar, and perhaps even broader, story about political activity. The public may realize that narrow private interests can more easily summon lobbying support (182) and interpret charitable lobbying accordingly. There would be no ready way for the public to verify that a charity's lobbying is more public spirited, and few observers would have incentives to investigate on their own. (183) Further, because lobbying in pursuit of a shared goal would be susceptible to free riding across groups, lobbying by any one of those groups alone could be a signal that the firm is instead pursuing some private purpose. (184)

    Organizations could not necessarily preserve their reputation by avoiding lobbying. Although actual donors might take the trouble to read the firm's tax return to verify its reported lobbying expenditures, casual observers will provide the bulk of the general goodwill prized by warm-glow-motivated employees, and the general public will be rather unlikely to be able to distinguish between firms that lobby and those that do not. (184) Even if only some firms lobby, all might suffer a reputational hit. Additionally, the branding effects of lobbying could reduce the warm glow of all potential donors, not just employees. (186) Partisan politics, as others have suggested, may carry a taint or air of conflict that the nonprofit sector has until now largely avoided, diminishing the perceived returns of being known as a charitable benefactor. (187)

    On the other hand, there certainly are existing charities with a sharply defined ideological position, and the fact that these organizations sometimes thrive suggests a possible offsetting gain of increased politicization. (188) Sociologists suggest that at least a portion of warm glow is likely related to donors' feelings that they have personally participated in achieving their self-defined public policy goals. (189) That sense of ideological accomplishment can also help to explain voting and nondeductible contributions to political campaigns, both of which should be rare under a classic economic framework. (190)

    It is possible that both models could exist simultaneously in different pools of organizations. (191) Some classes of entities will try to present a staid, apolitical image: think of museums and performing arts centers. Others, such as environmental groups or antiabortion organizations, might embrace the more politically engaged image. An important question would be to what extent the activities and image of one group spill over onto the other, or if some groups that cannot clearly shape their own image for the public will be pooled together, getting the benefits of neither extreme. As I said, these all seem like plausible theoretical possibilities; further field work is needed to sort out which effects are the most important. (192)

  2. Regulatory Mismatch

    Another potential negative consequence of combining lobbying and charity in one entity is that different regulatory tools are optimal for each, and in many instances, cannot be simultaneously employed. In particular, political markets should arguably be regulated with sticks whereas charity should be regulated with carrots. As I have explained in prior work, subsidies to encourage good behavior can potentially be replaced with a punishment for those who fail to do good. (193) Both options have similar effects on the marginal incentives of donors. (194) Whether donors are rewarded, or nondonors fined, giving an additional dollar saves donors money relative to not giving. (195) However, the two mechanisms vary in a number of other important ways. Which option is the better choice for a particular policy depends largely on these other factors. (196)

    Except in unusual circumstances, sticks are the more efficient tool for reining in the social overproduction of some negative externality-laden good. (197) Sticks earn the government money, whereas carrots drain the treasury, wasting hard-won tax revenues. Carrots give producers more resources to create the unwanted good and may even increase their demand for it, a phenomenon known as the "income effect." (198) Carrots are wasteful if producers plan to cut back on their activities anyway. And overproducers who know they will be paid a carrot to curtail their activities in the future have an incentive to begin overproducing, whereas the opposite is true of sticks.

    In contrast, carrots are more defensible for encouraging the production of a good with positive externalities, for which we would expect social underproduction. (199) In that case, the fact that carrot recipients have more resources is desirable, because we want them to produce or demand more of the good. On the other hand, it is still the case that the expectation of future carrots has unwanted incentive effects, encouraging producers to delay producing the good until the government agrees to pay them. Carrots also remain costlier, especially when factoring in the possibility that some might produce the good altruistically without subsidy. (200) Thus, even though carrots are less clearly dominated by sticks in the positive externality setting, a question remains whether they are worth the cost.

    On this account the subsidy for contributions to charity is at least plausibly efficient. The central question would be whether the increased donations we see as a result of donors' greater wealth from receiving carrots is worth the cost of the subsidy. As part of this cost, we would also have to consider the extent to which many donors would be willing to give even without government reward; again, data suggest that personal motives for giving are widespread and quite substantial. (201)

    At the same time, these factors suggest that failures in the political market should probably be corrected with sticks. (202) As we saw earlier, spending money on lobbying is like driving a care: it is a great way to get somewhere if no one else is on the road, but at rush hour, you might be better off walking. (203) More technically, lobbying is likely subject to congestion, in which use of a shared resource creates negative externalities for other users. (204) Of course, lobbying also provides positive externalities to those with similar goals as the lobbyers. (205) It therefore represents a hybrid good, falling somewhere between pure positive externality and pure negative externality goods. As such, the argument for political carrots is tenuous. Carrots would enrich donors to lobbying organizations, leading to more lobbying. More lobbying contributes both to congestion and political expression for the organizations' other supporters. Theory thus does not clearly predict whether the net income effect from enriching donors would increase social welfare. Given that the income effect is the primary argument in favor of carrots, this point significantly weakens the case for lobbying carrots.

    This mismatch between the regulation of charity and lobbying is a reason to separate the two functions. Granting carrots to some of an organization's donors and imposing sticks on...

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