Leadership Giving in Charitable Fund-Raising

Abstract

Why do charities often begin new capital fund drives by announcing a large contribution by a single wealthy donor? This paper explores the possibility that such “leadership giving” provides a signal to all other givers that the charity is of high quality. The dilemma is that if the lead giver can deceive others to believe the charity is of higher quality than it truly is, then these followers will make larger contributions, which will benefit the leader. Hence, the leader must give an unusually large amount to convey a credible signal of the quality. This sets up a war-of-attrition game for who will pay the cost to signal the quality. Since the wealthy have the lowest opportunity cost of providing the signal, they, in equilibrium, move first to provide the signal of quality with exceptionally large gifts.

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