Living Economics

At first sight, charitable giving seems to benefit mostly the recipient at the expense of the giver. In other words, it is unlike a market transaction where there is an exchange of equal value among the parties involved.

But charitable donors do get something in return. Neuroscience experiments have shown that the act of giving activates the reward center of the brain and also the part that is linked to mother-child bonding and romantic love.

Beyond this intrinsic psychic reward, donations may be tax deductible. With tax deduction, the donations go further because the recipient receives more than what the donations cost the givers.

Perhaps the most important benefit to the donors is the name recognition. Public recognition serves to enhance the image of the donors among their peers. It is rare to see a building named after an anonymous donor. In fact, many university buildings would not have been built if they are not named after the donors. This name recognition is so important in motivating funding that some states have passed laws specifically forbidding state buildings to be named after incumbent politicians.

But image polishing could be compromised if the donors receive any material quid pro quo beyond name recognition. For example, paying blood donors might adversely affect both the quality and the quantity of donated blood. Those who donate blood for the money are understandably less concerned about the quality of their blood. And those who donate blood for a good cause are turned away by the tainted image of paid blood donation.

This reservation about tainted image can, of course, be leveraged for bigger donations. If material reward is given for a minimum donation and bigger donations are rewarded additionally with only higher public honors but no additional material reward, then the peer image of bigger donations would not be compromised since the suspicion of being in it for the material reward is absolved. Potential donors might therefore be motivated to ratchet up their donations to higher levels to stay above suspicion.