Unofficial Development Assistance: A Model of Development Charities’ Donation Income
| Author | Peter G. Backus,John Micklewright,Wiji Arulampalam |
| DOI | http://doi.org/10.1111/obes.12063 |
| Published date | 01 April 2015 |
| Date | 01 April 2015 |
191
©2014 TheAuthors. OxfordBulletin of Economics and Statistics published by Oxford University and John Wiley & Sons Ltd.
Thisis an open access article under the ter ms of the CreativeCommons Attribution License, which permits use, distribution and reproduction in any medium, provided
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OXFORD BULLETIN OF ECONOMICSAND STATISTICS, 0305–9049
doi: 10.1111/obes.12063
Unofficial DevelopmentAssistance:A Model of
Development Charities’Donation Income*
Wiji Arulampalam,†,‡,§ Peter G. Backus,¶,**, and John
Micklewright††,§
†Department of Economics, University of Warwick, Coventry CV4 7AL, UK
(e-mail: wiji.arulampalam@warwick.ac.uk)
‡Oxford University Centre for Business Taxation, Said Business School, Oxford
§IZA, Bonn, Germany
¶Department of Economics, University of Manchester, Manchester M13 9PL, UK
(e-mail:peter.backus@manchester.ac.uk)
**Institut d’Economia de Barcelona (IEB), Barcelona, Spain
††Institute of Education, University of London, 20 Bedford Way, London WC1H 0AL, UK
(j.micklewright@ioe.ac.uk)
Abstract
The empirical literature on the determinants of charities’ donation income, distinguishing
the charitable cause, is small. We consider the case of development charities specifically.
Using a panel covering a quarter of a century, we observe a strong fundraising effect and
a unitary household income elasticity. We find evidence that the conventionally identified
‘price’effect may simply be the product of omitted variable bias. Our results further suggest
that public spending on development crowdsin private donations for development. We find
a positive spillovereffect of fundraising, suggesting the efforts of one development charity
may increase contributions to other development charities.
I. Introduction
Discussion of development finance often focuses on Official Development Assistance
(ODA), given by governments in the form of bilateral or multilateral aid. However, contri-
butions from private individuals are also prominent. These include both remittances from
migrants (e.g. Solimano, 2005) and the donations made to charities working abroad for
overseas aid and humanitarian assistance, which have received much less attention from
*This research was supported by ESRC grant RES-155-25-0061 (‘Giving to Development’), which formed part
of the Non-Governmental PublicAction programme. The project was conducted in conjunction with TonyAtkinson,
Cathy Pharoah and Sylke Schnepf and we thank them for very helpful discussion and suggestions; we drawon our
joint work developing the panel database reported onAtkinson et al. (2012), but er rors in the current article are ours
alone. Weare g rateful to the CharitiesAid Foundation for access to their data; data from Charity Trends from 2001
onwards are used also with permission of Waterlow Ltd who retain the copyright in them. We thank Ian Mocroft for
help in documenting government funding of development charities and Robin Naylor,David Clifford and the editor
and referees for comments and suggestions.
JEL Classification numbers: D1, D6, F3, L3.
192 Bulletin
researchers. The large theoretical and empirical literatures on charitable giving tend not to
distinguish giving by cause (Andreoni, 2006). In this article, we model donations received
by overseas development charities in the UK, the total of which, in 2004–5, equalled about
a quarter of the UK’s ODA.We use a newly constructed panel on individual charity finances
that spans over 25 years.
Our focus on giving for overseas development rather than total giving allows us to
pay more attention to the particular characteristics of giving to this cause. We draw in
part on the theoretical model in Atkinson (2009), which explicitly considers the giving to
overseas development charities by private individuals. We extend the existing empirical
literature on charities’ donation incomes that has focused on charity level factors, such as
fundraising and government grants received by charities, by introducing aggregate donor
characteristics, ODA and humanitarian crises within a single framework,allowing also for
possible dynamics. Section II outlines this approach. Sections III and IV describe our data
and econometric approach. Section V presents results and section VI concludes.
II. Modelling charitable giving for development
Charities receive income from sources such as the sale of goods and services, grants
and voluntary contributions in the form of money donations which have generally been
modelled as a function of either donor characteristics or charity characteristics. On the
donor side, theory describes behaviour based on public goods and ‘warm-glow’ motives
and the empirical literature focuses on modelling donations as a function of personal
characteristics such as income using household or individual level data (see Peloza and
Steel, 2005). On the charities’ side, a smaller body of theory describes their activities (e.g.
Steinberg, 1986; Steinberg and Weisbrod, 2005), much of it focused on their objective
function.The related empirical work (e.g. Weisbrodand Dominguez, 1986; Khanna, Posnett
and Sandler, 1995; Khanna and Sandler, 2000; Tinkelman, 2004) has sought to model
donation receipts as a function of charity characteristics such as fundraising expenditure,
often testing hypotheses about charity objectives.
In both approaches, the cause (e.g. health, education, development) supported by
donations or served by the charity is typically ignored. But, in general, people give
deliberately to a specific cause and charities are established to serve a particular purpose.
Atkinson (2009) argues that the publicgoods and warm-glow models each fail to capture key
aspects of giving for international development and proposes a new ‘identification’model
that incorporates elements of both.1Empirical studies may estimate a model for different
charitable causes, though there are generally no cause-specific variables in the models.
Moreover, models of donor behaviour that ignore the activities of charities, or vice versa,
may be mis-specified as the donation expenditure of households and receipts of charities
are two sides of the same coin and are a function of both donor and charity characteristics.
Andreoni (2006) emphasizes that ‘the interaction between supply and demand for philan-
thropy has been largelyneglected in both theoretical and empirical analysis’. Our empirical
model contains elements suggested from work on both sides of the market, integrating both
1
Atkinson’s model is similar in spirit to the ‘impact giving’ model of Duncan (2004), although Duncan had no
specific charitable cause in mind.
©2014 The Authors. Oxford Bulletin of Economics and Statistics published by Oxford University and JohnWiley & Sons Ltd.
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