Charitable giving: Altruism has no limits

The current consensus is that, due to the free rider problem, a theory of charitable giving based exclusively on altruism cannot explain the levels of contributions and participation observed in the data. In contrast, in this paper we demonstrate that altruism may have more predictive power than previously understood. We present a model in which the object of altruism is a large number of potential recipients of a good for which there is a target level of provision (e.g. an acute malnutrition treatment, an insecticide-treated bed net). We show that in this case donors may measure the value of a contribution with reference to the impact that such contribution has on additional recipients, not with reference to the impact on the total level of an organization's charitable resources as traditionally assumed. In this situation, the equilibrium involves no free riding whatsoever. Equilibria that do involve free riding are characterized by provision of the target level of the charitable good to all potential recipients.