Volunteers are happy

Why do people volunteer? Obviously it must be because they find some satisfaction in it. But they may be forced to do it (say, by peer pressure or because it improves one's CV), yet one can still argue they appreciate the volunteering because they find a benefit in it: without it, there would be adverse consequences. It thus seems unavoidable to find a positive relation between volunteering and happiness, unless one is able to tease out the circumstances of volunteering. Add to this the endogeneity issue that people may be volunteering because they want to spread their happiness, or because they enjoy good circumstances that allow them to work without pay.

Martin Binder and Andreas Freytag use the British Household Panel Survey to study whether volunteering makes happy. I am not sure their reduced-form estimates are able to capture the subtleties I mentioned in my first paragraph with propensity score matching. I find more promising their inclusion of personality traits to take care of selection bias in volunteering, although personality cannot completely be ruled as exogenous. Also, their quantiles regressions can potentially highlight some heterogeneity that can be useful for our understanding of the relationship. In the end, they find that volunteering makes people happy, no surprise here, and more so the longer they volunteer. The quantile regression, however, reveals that the happiest individuals do not derive happiness from volunteering, presumably they are happy for other reasons. The least happy ones do enjoy volunteering much more. I wonder whether this comes from some decreasing marginal utility of volunteering, and whether this ties in with the fact that the poor are more generous, as discussed before.

Named matching donor are best to elicit more donations

US universities care a lot about donations, as much of their operations are financed by endowment revenue. Foundations also spend considerable resources trying to build this endowment. Hence, it is no surprise that there is a steady stream of research on how to best elicit donations, especially from private universities. One of the big issues they face is to generate the first dollar in donation (which costs several dollars), after that it is usually much easier to get more donations.

Dean Karlan and John List find through experimentation that matching donors are particularly effective in enticing other donations, especially where they are named and recognizable. The latter effect is even stronger for new donors. The challenge now is to find the matching donor. The experiment was performed with the Gates Foundation, I doubt many other potential matching donors can be found to have such high appeal. The experiment may have been too extreme to draw reliable conclusions.

Why are the poor more generous?

Poor people are more generous than rich people when giving to charities. Their donations to churches are proportionally also higher. That seems rather puzzling, as the marginal utility of consumption is higher for a poor person, to she should be less willing to give something away. Of course, you could also argue that this person is poor because she is giving away too much. But there should be a better explanation.

Julio Rotemberg offers one. He bases his model on the fact that people like making donations to causes they can identify with: they are OK with making anonymous donations in such a case because it helps like-minded people, and they like it when others agree with them, and are thus willing to help them. The model yields multiple equilibria, some in which the rich give the bulk of donations, others where the poor do. This can help rationalize why the proportion donors varies so much from one country to another, and so independently from the size of the welfare state. Some parameter values lead to people donating in the hope it will encourage others to do so. These equilibria should be dismissed, according to results I recently discussed. The model also seems to build on the fact that there is little crowding out of private charity from public funds, which I doubt according to recent evidence I discussed here. But the model predicts nicely that there is a strong incentive for charities to differentiate themselves to capture donations, even if this not increase total donations.

The deadweight loss of gift certificates

Giving gifts in kind induces large deadweight losses, as I discussed in one of my very first blog posts. The basic idea is that people do not value their gifts as much as they would be willing to spend on, or at least that they would have spent the cost of the gift in a Pareto-improving way. If instead of receiving a gift in kind one obtains a gift card, the added flexibility should give us a small to negligible deadweight loss. I would compare this to an incomplete market that can get close to complete, in well-being, with very few securities like government bonds.

Flóra Felsö and Adriaan Soetevent study spending habits of gift certificate recipients. They find that the vast majority is not really constrained by having to buy at a particular merchant and only alter a little bit the timing of their purchases. One in seven (more among females), though, considers the gift certificate separately from the budget constraint and buys something one could not afford. While these people are happy about it, there is obviously still a loss in well-being. Indeed, if they want this purchase so much, they would have bought it from the "normal" funds. All in all, the deadweight loss from gift certificates does not seem important.

Egoistic giving

Why do people give to charity? It could be because they care about others. It could be for tax reasons. It could be to offload some guilt. It could be to improve one's standing in society. It could be to encourage others to do the same. Or it could be a combination of all the above. In a more fundamental way, the question is whether philanthropy is egoistic or altruistic.

To address this, Dean Karlan and Margaret McConnell examines donors to Yale University. During a telephone campaign, some potential donors were told about the opportunity of being recognized as donor in the college's newsletter. They responded by giving more frequently (+3%) and more (+14%) than the control group. Variations in the amount necessary to be listed did not yield significant effects, though. One can conclude from this that people donate at least in part to elevate their status and/or to encourage others to give.

To disentangle to two, Karlan and McConnell use a better controlled environment, the laboratory. They work with undergraduates to see whether the latter are willing to part with US$5 to help fight AIDS, tuberculosis and malaria. In some rounds, donors are announced, but no difference in giving is noticed by varying the timing of the announcements. One can thus conclude that giving to encourage others to give is not an important factor, even with such small amounts.

How to best increase organ donations

There is currently an increasing shortage of organs available for transplantation. This is due to a reduction in traffic fatalities, the main provider of healthy organs, and an exploding demand from patients. An economist would say here that there is a classic case of rationing because the price is too low (at zero) and one should let patients pay for organs. But as this is viewed as unethical, we will have to live with rationing and waiting lists, unless one can bring more people to donate organs. This brings up the question why people donate, and in particular why there is altruism. This question is still puzzling, as altruism may emerge from a combination of sense of duty, coaxing, reciprocity, tradition, social pressure, and others.

Juan Cabasés and María Errea try to sort this out by focusing on blood and living organ donation. They model the decision process of the potential donor that in particular factors in some negative effect of donation. Then they administer a questionnaire and test their theory. The survey allows to highlight the attitude towards donating, which in theory corresponds in part to the degree of altruism. But it appears the perceived cost of donating is much more important, as well as information about the need for donations. This shows that in order to encourage more donations, information campaigns may be quite effective, and maybe rationing or a proper market would not be necessary.

Addendum: I forgot to mention a caveat the authors neglect: The survey is administered to staff of an university. Such employees, I believe, are more altruistic than average.

Are we born altruistic?

Greed has been put forward a one the main reasons for the current crisis, yet there is plenty of evidence for altruistic behavior around us. In fact, plenty of experiments have shown that people are willing to share with complete strangers, because of some sense of fairness. There is also evidence, reported here recently, that altruism can differ quite a bit across populations. This raises the question of why altruism differs across people.


Kirsten Häger performs some experiments on seven to ten year olds in Germany and comes to an interesting conclusion: altruism is more prevalent among the older children, which would lead us to think that altruism is acquired. From casual observation on playgrounds, it is certainly so that toddlers are very egoistic and need to be reminded to share with others. Over the years, this idea seem to stick with them.

But if education is important for altruism, the there should be some explanatory power in socio-economic indicators, yet there seem to be none according to Häger. It then altruism not acquired after all, but rather something hard-coded that reveals itself as one grows up? Or is it something that one acquires not from one's direct environment (family and school), but from a larger environment? That would explain differences across societies.

Women's rights and development

It is sometimes puzzling when someone in power relinquishes it, especially when this person can take advantage of institutions to stay in power. One such case is when males, who were the only ones to have property rights, gave property rights to females. Why would they allow this, given that males had monopoly on votes and government?

Raquel Fernández comes up with an elegant story. The important trade-off is between appropriating all rights to oneself and how descendants, who include daughters, get. Looking at history, there are two major effects. The first is a decline of fertility, which under a patriarchal system allows fathers to bequeath more per son. But this increases the disparity between sons and daughters, and thus reduces the advantage over equal distribution, through the concavity of utility. The second effect comes from the general increase in wealth, with a similar logic.

In both cases the father becomes better off sacrificing some wealth to his wife in order to force sons-in-law to be more generous with his daughters. The prediction is then that lower fertility and more advanced economic development both force earlier adoption of female property rights, something Fernández finds across US states, which have adopted such laws at various times between 1846 and 1920 (and four states still missing by then). And the theoretical prediction is obtained without assuming changes in altruism towards children, which I find remarkable.

Religious sacrifices in the lab

We all had chuckle when learning about some tribe or civilization making sacrifices to some spirit or deity, sacrifices that seem to be completely ineffective and the result of some superstitions. Before doing some navel gazing whether the sacrifices we do ourselves to our churches fit the same bill, let us think whether there is something innate that makes us surrender to such superstitions with useless sacrifices.

Paul Frijters and Juan Barón perform an experiment whereby participants experience outcome uncertainty due to "Theoi," and participants can make a sacrifice to "Theoi." Despite the fact that these sacrifices have no impact on outcomes, they amount to a staggering 30% of takings. Even labeling the source of the uncertainty later in the experiment as "the weather," which is clearly exogenous, does not change things. Participants facing no uncertainty still sacrificed 7%.

What does it tell us about human nature? Faced with the unknown, we believe we can still influence it with some sacrifice, no matter who irrational that may seem. And this seems to be deeply ingrained in us, as animals do the same, such as pigeons.

Why volunteer?

Why do people volunteer, or why are they altruistic? I have followed the open source movement, and beyond the sense of doing this for the common good, there certainly is an element of showing off skills, be it just for brownie points or for signaling to potential employers. But such signals are not relevant in other areas of volunteering.

Take volunteer firefighters, who Jeffrey Carpenter and Caitlin Knowles Myers study. They have data on time spent volunteering, altruism measures from the standard dictator game as well as other behavorial measures and conclude that both altruism and social image matter. And the more people get compensation by money, the less the social images matters.

These results are hardly surprising. Volunteer firefighters quite obviously like their work and their utensils. Just see how shiny they keep their trucks and take every opportunity to parade them. But that is good, and this is a way to show to others how altruistic they are, similarly to Shriners in their miniature cars. And once paid, firefighters seem to consider their job like any other, so image is less important to them.

That said, firefighters enjoy quite some social prestige, which is repeatedly reinforced by authorities and media. This applies also to the police force and teachers. I have always wondered whether this was a way to compensate them for low pay. From this study, it seems firefighters are certainly internalizing this trade-off.

The parental home as unemployment insurance

It is well known that in Spain and especially Italy, people in their twenties and even thirties stay with their parents until they find a job, and they often wait for the "perfect" job. This looks like an unemployment insurance with infinite duration with substantial moral hazard, which has lead to sky high youth unemployment rates in Europe.

Greg Kaplan is documenting that something similar is happening in the United States. Using the NSLY, he finds that many of those who do not attend college return home during unemployment spells, much like college students return home over the Summer. This analysis is very nicely done with an estimated structural model that features a repeated game between children and altruistic parents. In particular, this allows to understand why the savings rate of young people is so low. As they have the option of returning to their parents, they see no need to build up any precautionary savings. This means also that programs like unemployment insurance have little impact for them.

A measure of guilt

How do you measure guilt? There is no market price for it, and most of the time it has no measurable expression. One would need some rather particular circumstances to find a way to measure guilt. Hongbin Li, Mark Rosenzweig and Junsen Zhang found it.

During the Cultural Revolution in China, many urban families had to send some of their children to work among farmers. Assignments were to a large extend random, and parents had to choose which child to send. As this send-off was viewed as an unjustified punishment, many parents felt guilt and tried to compensate later in life with transfers, as a marriage gift or other. To get a clean data set, Li, Rosenzweig and Zhang set out to recruit twins and compare those who were separated during this period, as presumably everything else prior should have been identical. And it turns out that those that were sent off received substantially more from their parents, even when they were subsequently better off than their siblings. And this result is robust to all sorts of controls, for example party membership (there was indoctrination on farms, and party members were more likely to gain favors in the system, which parents may want to buy into).

I hope they will be using this data set for other studies. Otherwise, this would have been a tremendous effort for only a proof of concept. Because I see little use for the result beyond that.

Should old women pay for the health of old men?

Several years ago, Richard Posner conjectured that old women should pay for the health care of old men. The reason is that old women tend to live longer and appreciate the company of men, thus they would be happier if they lived longer. This is a purely theoretical argument as in all industrialized economies health care is state provided, at least in retirement. But note it leans on one important assumption: old women are happier if married.

Christoph Wunder and Johannes Schwarze test this using the German Socio-Economic Panel, an endless source of insights. And they find that widows are just as happy as married women quite rapidly after the loss of their husbands. I would conjecture that retirees are quite prepared for such eventualities, and the loss of a partner affects them less than earlier in life.

However: what about the men? Would they like to live longer? Is the marginal utility of an additional year of life at age x higher for a man than for a woman? This will never be measurable, but this should be the real question to ask.

Play with your colleagues, and write a paper about your experience

Who has not dreamed of playing a crank on one's colleagues? And then get a paper out of it? This paper is not quite about a crank, it is about an experiment that João Ramos and Benno Torgler played on their colleagues. Many departments have a common room for people to get coffee, chat and hang out. Ramos and Torgler used their common room at Queensland University of Technology to play a game unbeknown to their colleagues, namely test the Broken Window Theory.

The theory states that if a building has a broken window, it will soon have more broken windows, because the first one signals neglect and thus breaking a window has no consequences. The particular experiment is interesting because participants were unaware they were being observed. It went as follows: usually the common room is cleaned every morning, with all dishes washed in a dishwasher. It is expected from everyone to put dirty dishes in the dishwasher. The experiment is to put a controlled number of dirty dishes in the sink and mess up further the place with newspapers and sugar packs.

In the tidy common room, 18% of users littered, defined by not putting their dishes in the dish washer. With the messed up common room, 59% littered. Older faculty tend to litter more, surprisingly, and there is less littering when more people are present (peer effects) and on Mondays (habit from not littering at home over the week-end).

Oh, how I wish I had the idea of hanging out in the common room for a full month and get a paper out of it...

On the impact of religion on social trust

All religions I know of advocate that one should care and trust others. But "others" needs definition: in many cases it means others from the same religion, to the exclusion of other religions. Thus, if religiosity is higher, does this lead to higher social trust? It is not obvious as more religious people may trust more their own and less the others. To give a parallel in internation trade: are free trade unions good? Yes, because they reduce tariffs, but no if they increase tariffs for trade outside of the "club."

Niclas Bergren and Christian Bjørnskov study the religiosity and social trust question using survey data that, among others, asks to questions: "Is religion an important part of your daily life?" and "Can people in general be trusted?" They perform cross-country regressions using 105 countries and all US states. The outcome: reliogisity reduces social trust, both internationally and with the US states. Why? I can only speculate here, but humans are social beasts that operate at the level of clans. Religious affiliation is one expression of this. And for a religious person, anybody who does not share the same values is suspicious.

Does this mean the world would be better without religions? For one, less resources would be spent in demonstrating how my god is netter than yours. Also, this study shows that we would have more trust, an essentail ingredient of trade. But as Malthus said, I paraphrase, materialism is not the only element in happiness, spiritualism can be important, too.

Traffic safety, obesity, and ... organ donations

There are times where you really wonder why authors would even think that some variables could be correlated and how they then come up with a story that can explain this statistical relationship coming from seemingly nowhere. The paper by Jose Fernandez and Lisa Stohr is one of these.

To quote their abstract, "this paper uses variation in traffic safety laws and obesity rates to identify substitution patterns between living and cadaveric kidney donors." Despite reading this sentence ten times, I could not make any theoretical sense of it. But reading through the paper, a good story can be made. Tightening traffic safety laws reduces the number of fatalities, and thus the number of cadaveric organ donors. An increase in obesity increases the demand for organs, in particular kidneys. Thus one can instrument for supply and demand using these measures. With this in mind, one can then study how variations in the supply of supply of cadaveric organs (which are of poor value) and demand can motivate living donors to come forward, as they trade off the usefulness of their donation with the personal harm it will inflict upon them. Fernandez and Stohr find that donors respond indeed to cadaveric supply and to the increase in demand due to obesity.

But finding such ways to interpret data is difficult, you need the talents like those of John Donohue and Steven Levitt.

Update: I just came across another paper making essentially the same points, by Randolph Beard, John Jackson, David Kaserman and Hyeongwoo Kim.

Private charity vs. government support

Europeans prefer the state to help needy causes, Americans have a preference for charities to take care of this. Are government support and philanthropy substitutes or complements? If they are perfect substitutes, then it would not matter what the source is. If they are complements, you would want both to be in play.

James Andreoni and Abigail Payne point out that there is more to the story than simple crowding out. Suppose that a government provides some resources to an organization, say $100. Then people will contribute $56 less. But not all this crowding out is coming from people feeling they are not needed any more. $38 of this $56 reduction are due to lower fund raising effort. This makes it particularly important that any money the government gives should have a matching requirement from private funds to maintain the fund raising effort.

Push Presents: Irrationality?

There is apparently a disturbing new trend according to the Telegraph, namely push presents. These are presents a mother is expecting for the delivery of a child, and these presents are expected from the father. There was a time where the gift of life and flowers would do, and the latter served a purpose: beautifying a hospital room. But this new trend is not about flowers, but expensive jewelry. And I do not understand the logic of it.

A child is usually a big financial liability: feeding, clothing, educating, entertaining, providing shelter and security do not come cheap. For a rationally thinking person, this is a large financial hit. This is why governments typically support families with children in various ways. Then why add to the financial burden with jewelry requirements? It is not like those shiny rocks are any good investment. Just try selling a diamond. In particular, why would a mother, who cares very much about her child, jeopardize the future of said child with unwise financial decisions?

The only way I can think of rationalizing this is the following. Say the mother is worried the father would walk away. Then any financial guarantee is good, and shiny rocks have some value, can be immediately coaxed from the father and are considered in many jurisdictions as unreturnable in case of break-up. Weighing this against the financial gain of the couple of not purchasing a diamond, a gain that is mostly in the future, calculate the probability of a break-up, and it may all make sense. Sorry to take the romance of the diamonds...

PS: Sorry, no post last Friday, I was wasting my time on Uncyclopedia.

The dead weight loss of Christmas

Sorry to rain in on all your Christmas cheer, but this period just bums me for the waste of resources it brings with it. I am all for people being generous to others and spreading wealth and happiness, but Christmas presents are just the wrong way to do it. Are the gifts you give to others truly the best use of the money the others would have made? Or, seen from the perspective of the gift receiver, would have bought something else with the the value of the gist I just received?

It turns out that the AER published back in 1993 a short article by Joel Waldfogel with the same title as this post. He surveyed Yale undergraduates to estimate how much the mismatching between the gifts and the wishes of the receivers were destroying the value of the gifts. Results: between 10% and 33% are lost. Losses are at the lower end of the interval for gifts from immediate family and friends, and at the upper end for extended family. Waldfogel finds also that cash gifts are more likely when losses are likely to be high, or when there is high variation in recipient valuation.

Waldfogel's results were controversial, first because the sample was drawn from a highly unrepresentative sample of the American population: Yale undergraduates (rich, young, dependent on parents). Also people seem to value a good more when it is received compared to self-bought. This can even result in a welfare gain from Christmas. Subsequent comments (rarely has a short article in the AER generated so much discussion in the AER) highlight that it is very difficult to measure anyway, and that the sequencing of the survey questions matters.

My take on this: I have the feeling that in many cases the original Waldfogel results are accurate. Just think of all the "gift stores" that sell crap you would not buy for yourself, but is good for giving to others. But I can believe that in some situations, the sentimental value of a gift makes up for the value. Think for example about diamonds: while the diamond industry managed to create the illusion they are worth a lot, their resell value is very low. Yet, all those women receiving diamonds are overjoyed, even when they should realize the hole it created in the household budget.

Once you remove the sentimental value of a gift, it is clear that there is a dead weight loss. This extends beyond Christmas. Imagine for example housing support for the poor, as it is common in the UK. Why give a housing subsidy? Wouldn't the poor be better off with a general subsidy?

Note also that gift buying typically happens in period where buying frenzy is encouraged by stores and media, at least in the United States. I can understand that it becomes difficult for some people to exercise restraint. Such unbridled consumerism can only add to the dead weight loss.

Media often comment how important good fourth quarter shopping results are for the economy. Well, the media is most likely wrong. I would prefer to have smaller seasonal effects and a better allocation of resources.