Impure altruism and donations to public goods: A theory of warm-glow giving

Abstract

When people make donations to privately provided public goods, they may not only gain utility from increasing its total supply, but they may also gain utility from the act of giving. However, a simple application of the public goods model ignores this phenomenon. A consequence of this omission is that the theoretical predictions are very extreme and implausible: total provision of the public good is independent of the distribution of income among contributors, government provision completely crowds out private provision, and subsidies are neutral. On the other hand, the impure altruism model leads to predictions that are intuitive and that are consistent with empirical regularities. By assuming that individuals are not indifferent between gifts made by themselves and gifts made by other individuals or the government we conclude that redistributions to more altruistic people from less altruistic people will increase total provision, that crowding out will be incomplete, and that subsid