Information Costs and the Impact of Charitable Giving

Abstract

Donors may be unwilling to acquire information about nonprofit performance because information is costly, potentially resulting in inefficient giving. Using an experiment, we evaluate the hypothesis that donors can be induced to give more efficiently when information costs are borne by another donor, holding total spending constant. We propose that information about nonprofit performance is a social good with significant positive externalities that donors may not equally value. In consequence, donors on average may tend to acquire too little information relative to the social optimum. We find that average donation impact can be increased by about 13% by shifting the information cost burden. We conclude with recommendations for policymakers, public agencies, information intermediaries, donor-advised funds, nonprofit practitioners, and researchers.