A Theory of Charitable Fund-Raising with Costly Solicitations

We present a theory of charitable fund-raising in which it is costly to solicit donors. We fully characterize the solicitation strategy that maximizes donations net of fund-raising costs. It is optimal for the fund-raiser to target only the "net contributors" -- donors who would give more than their solicitation costs. We show that as the income inequality increases, so does the level of the public good, despite a (potentially) non-monotonic fund-raising strategy. This implies that costly fund-raising can provide a novel explanation for the non-neutrality of income redistributions and government grants often found in empirical studies.

Duke Scholars

Author Huseyin Yildirim Economics