TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, February 8, 2018

Insuring Your Charitable Donation: An Experiment

Renate Buijze (Erasmus University Rotterdam), Christoph Engel (Max Planck ) & Sigrid Hemels (Erasmus University Rotterdam), Insuring Your Donation: An Experiment, 14 J. Empirical Legal Stud. 858 (2017):

There is a rich experimental literature on the determinants of consumers’ generosity (summarized by a meta study one of us has published, (Engel 2011)). This literature shows, inter alia, that donations are the higher the more the recipient is deserving help; the higher the bigger the effect on the recipient; the lower the more pronounced the uncertainty. To the best of our knowledge we are the first to study – with the help of a lab experiment using a real charity, a real risk, and a real insurer – whether consumers are willing to pay for insuring them against the risk that the donation misses its intended goal, or that the donation is not rewarded by a refund. We find a pronounced willingness to pay for either insurance. But the availability of insurance only increases the frequency of donations if the risk affects the recipient’s deservingness.

An increasing fraction of donations is channeled through donation intermediaries. These entities serve multiple purposes, one of which seems to be providing donors with greater certainty: that the donation reaches its intended goal, and that the donor may be sure to get a tax benefit. We interpret this function as insurance and test the option to insure donations in the lab. Our participants indeed have a positive willingness to pay for insurance against either risk. Yet the insurance option is only critical for their willingness to donate to a charity if the uncertainty affects the proper use of their donation.

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