Where Most Needed

Fundraising is an area where behavioral economics is likely to produce practical results.  A recently published study reports on a field survey of 5,000 households that simultaneously addressed the questions of:

• impact of additional factors like lotteries and seed money contributions
• impact of personal characteristics of solicitors.

Craig Landry, Andreas Lange, John A. List, Michael K. Price, Nicholas G. Rupp, "Toward an Understanding of the Economics of Charity: Evidence from a Field Experiment," The Quarterly Journal of Economics, May 2006, Vol. 121, No. 2, Pages 747-782.  The Journal is here, the article is available from National Bureau of Economic Research for $5 here.  You might also find a copy of it here.

The design of the experiment was to create four different offers: a simple ask, an ask that informed donors that a commitment of $1,000 ("seed money") had already been made, an ask with a single prize lottery of $1,000, and an ask with a lottery with four $250 prizes.  Steps were taken to ensure that the solicitation (fundraising for a small capital campaign) was seen as legitimate (ads in local newspapers, printed brochures). 

The researchers recruited 44 solicitors from East Carolina University undergraduates and paid them $10 an hour.  The solcitors were given personality tests and their photos were evaluated for attractiveness on a 1 to 10 scale by a group of 152 observers (undergraduates from the University of Maryland College Park). 

The highest average contribution (of those contributing) was from the seed money appeal; however, the lottery appeals increased participation levels so much that they raised more per contact.  One in four households contributed to the simple ask, one in seven to the seed money appeal, but 46% responded to the single prize lottery and 36% to the multiple prize lottery.

In the appearance category, the most dramatic result was that attractive females (those with, as the article puts it, "a one-standard deviation change in personal attractiveness") achieved an increase in contributions equivalent to that of adding a lottery.   "This result is largely driven by increased participation rates among male households," the researchers observe. 

There are a couple of asides in the article that are noteworthy in themselves.  Footnote 16 addresses the cost of fundraising, including the fact that first-time appeals are very rarely money makers:

An astute reader will realize that we lost money in this fundraising drive given our wage rates and fixed costs. This outcome is in line with “best practice” fundraising results and therefore provides evidence that our field experiment was “externally valid.” For example, Sargeant [reference omitted] shows that most charities lose money on their first fundraising endeavors (typically about half of what they invest). Indeed, in personal communications, fundraising experts state that over 90% of first efforts lose money.

There is also a discussion of the relationship between charity and lotteries: not only do lotteries improve charity response, the reverse also seems to be true.  By reviewing results of state lotteries with and without a targeted public benefit, the researchers found that those with a specific target (such as education) raised more than those without one.