Suppose you work at an organization -- like a public radio station or library -- that offers a free service of value to society, such as quality radio programming or the ability to borrow books at no cost. And suppose you decide to launch a fund-raising drive to help cover your organization's operating expenses. How would you structure that drive? Are there steps you could take -- besides offering gifts or other incentives -- to increase the amount of money that individual donors commit?
Wharton operations and information management professor Rachel Croson and Jen Shang, a PhD student formerly at the University of Pennsylvania and now at Indiana University, set out to answer this question by examining the influence of social information on contribution behavior. Their specific goal was to find out whether individual donors to a public radio station will give more money if they are told the amount of another donor's contribution. Their paper is entitled, "Field Experiments in Charitable Contributions: The Impact of Social Influence on the Voluntary Provision of Public Goods."
The researchers chose public radio as a representative example of an institution where individuals benefit from a service but are not required to contribute to it; at the same time, the community is better off as a whole when the service is funded. Other examples of "positive externalities" include environmental groups, which enable others to enjoy the benefit of cleaner air without themselves making any donation; or town watch committees, where the whole community benefits from reduced crime, including those who don't contribute time or money to the town watch effort.
Croson notes that social information affects behavior in a variety of economic situations, such as labor markets (when you are trying to decide what a reasonable wage is, you look at what other people earn) and investing (when making decisions about how to allocate your portfolio, you look at what other people with similar assets have done).
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