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7o~)ord0 Behoviorol Theory of Philonthropic Activity Bruce Bolnick Much of the all-too-scarce literature on the economics of philanthropy is devoted to analyses of the effects of philanthropic or charitable activityl on interesting economic phenomena. This genre of the theory is typified by the analysis of income redistribution presented by Hochman and Rodgers2: assuming that utility functions contain interpersonal arguments (e.g. that an increase in Jeff's income will benefit Mutt to some extent), redistribution can be considered as an optimality problem. David Johnson has carried this approach even farther, examining the patterns of exchange generated under a variety of assumptions about the form of interdependent utility functions.3 By assuming that philanthropic activity yields utility, these writers have rendered such behavior susceptible to the traditional tools of economic analysis; benevolence represents a special case of the general theory of consumer choice, posing no formidable challenge to the basic theory. But at the same time, a more fundamental issue is uncovered: What types of motivation underlie philanthropic activity? Until this issue is confronted, 1 We will use the term "philanthropy" interchangeably with "charity" and "voluntarism." All will refer to the act of choosing to donate funds, services, or goods to other individuals, or to organizations or the public weal, without direct economic quid pro quo. 2 Harold M. Hocnman and James D. Rodgers, "Pareto Optimal Redistribution," American Economic Review, September 1969. 3 David B. Johnson, The Fundamental Economics of the Charity Market (1968 dissertation, University of Virginia). See Part III. 197 198 • ALTRUISM, MORALITY, AND ECONOMIC THEORY sc $ L-------------------------------------~N Figure 1 economic theory will find it difficult to explain why charity succeeds in financing project X but not project Y, or to understand the nature of the social interdependence usually assumed to lie at the root of charitable behavior. While it is logically unassailable to add benevolence to the utility function in order to assess its impact on equilibrium or optimality conditions, this approach is unsatisfying as a behavioral theory. One would hope that social scientists can do more than add an arbitrary form of interdependence to the utility function to illuminate the origins of philanthropic behavior. Especially considering the apparent irrationality of this behavior4 -the philanthropist is assumed to gain utility from the act of foregoing consumption opportunities without receiving a quid pro quo-a more systematic analysis of underlying motivation is called for. A few attempts have been made to explore the behavioral basis of philanthropic or charitable activity. One notable attempt to construct a model of philanthropic behavior (or "voluntarism") has been provided by David Johnson.s Johnson's basic hypothesis is that individuals will donate to a charity only to avoid "societal costs" in the form of social pressures, religious beliefs, and psychic unpleasantries. If each individual's contribution is small in relation to the aggregate philanthropic effort, the free rider psychology would ordinarily preclude success of the "charity market." Where this is so, philanthropic activity must be placed in the hands of the "political market" instead. Only a selective cost imposed on each individual can overcome the compelling logic of the free 'This characterization is made by Mancur Olson. In his introduction to The Logic of Collective Action (Cambridge: Harvard University Press, 1965) he states that only "altruistic" or "irrational" individuals will forego their self-interest to provide for the common good. Also Musgrave, in his Theory of Public Finance (New York: McGraw-Hili, 1959) in effect argues that the assumption that individuals will behave cooperatively is "unrealistic and inconsistent with the premises of all other phases of economic analysis." See p. 12. sDavid Johnson, op. cit., Part IV. Toward a Behavioral Theory ofPhilanthropic Activity. 199 rider; in Johnson's model, the societal costs serve this function. Specifically, the societal cost is generated by invective aimed at the tightwad, discounted by a factor representing the likelihood that others will detect his selfish behavior. Since both of these factors are a function of the size of the community (N), the societal cost (SC), translated to dollar equivalent, can be described as a function of N, as shown in Figure 1.6 For any N, the height of SC shows how much the individual will be willing to allocate to philanthropic activity, such as the provision of a public good through voluntary cooperation. In summarizing his model, Johnson concludes that "the height of the societal cost function depends upon the folkways and mores of the community, the type and quantity of the public...


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