On the voluntary financing of public goods

According to standard theory, public goods will be under-supplied in the market place as a result of the free-rider problem. However, voluntary financing of public goods is an important empirical phenomenon, which is particularly evident in the existence of a substantial voluntary sector in most modem economies. The central aims of this thesis are: (a) to attempt to quantify the extent to which charitable organisations may have succeeded in overcoming the free-rider problem; and (b) to provide an empirical analysis of the effectiveness of the different devices that have been developed-both by charities and the state-to counteract the free-rider tendency in potential philanthropists. Chapters Two and Three set out to quantify the extent to which voluntary charitable donations fall short of the total willingness to pay for the services provided by charities. The results suggest that UK charities currently capture 50% to 70% of their full economic value in voluntary donations. The additional willingness to pay of £40 to £60 per year, exceeds the current per capita government grant to the charitable sector of some £35 per year. Chapter Four looks at the extent to which philanthropists are responsive to measures designed to reduce the price of making charitable contributions, in particular through fiscal incentives. The central finding is that contributions respond significantly, but inelastically, to the tax-price of giving. This implies that grant finance-rather than the provision of tax breaks-is probably a more efficient way for governments to support voluntary organisations. Chapters Five and Six are concerned with the neglected role of charitable fund-raising activities in stimulating philanthropic gifts. The research shows that two key issues in determining the success of fund-raising are the choice of the contact method and the amount of information used to define the target group. An overall conclusion is that the returns available from refining fund-raising technologies are potentially very much larger than what might be obtained from fine-tuning fiscal incentives