In our latest Freakonomics Radio on Marketplace podcast, we look at the economics of charity — specifically, what works (and what doesn’t) when trying to incentivize people to give. (Download/subscribe at iTunes, get the RSS feed, listen live via the media player above, or read the transcript.)
In Australia, Dick Smith’s electronics empire has afforded him enough success to be able to donate about 20 percent of his annual income to charity. But, he says, this kind of generosity is no longer the norm:
SMITH: When I was a young boy in the 1950’s, anyone who was wealthy was also known as a philanthropist. And they gave money away. These days we have incredibly wealthy people. I mean, our wealthiest is Rupert Murdoch, who gets a $33 million-a-year salary and also is worth about $4 billion dollars, but is not known for philanthropy in any way.
It’s the system of noblesse oblige, Smith says, that requires the wealthy to give, and he’s tried quietly to persuade his compatriots to fulfill their obligations:
SMITH: But I’ve not succeeded. I’ve completely failed. So now I’m going publicly and outing these people, and at least embarrassing them, hoping that one will break ranks and fulfill obligations of putting something back into society.
It’s too soon to say whether a healthy dose of public shame will be the kick that gets people to give, or if Smith, as one Australian writer put it, is just “a dickhead.”
University of Chicago economics professor John List has concentrated his research on the science of philanthropy, and as he tells Stephen Dubner, there are a few surefire ways to get people to give. Big-name endorsements, one-to-one matching gifts, and raffles all work wonders to lubricate cash flow. What doesn’t work? Rebates. An offer to refund money if a fundraiser doesn’t reach a goal doesn’t exactly send a signal of confidence. It’s like saying: We’re not so sure we can raise this cash, and you can’t be certain either.
Here’s where to find Marketplace on the radio near you.
Kai Ryssdal: Time now for a little Freakonomics Radio -- that moment every couple of weeks when we hear from Stephen Dubner, the co-author of the books and the blog of the same name. It's the hidden side of everything. This week -- in the spirit of the season -- Dubner weaves a tale of charitable giving -- as only Freaknomics can do.
Stephen Dubner: Today, we begin in Australia, with the story of Dick Smith.
Advertisement: You're my favorite, Dick Smith Electronics!
Dick Smith made a lot of money with his chain of electronics stores. Now, he says, he gives 20 percent of his income to charity. Smith says Australians don't give nearly enough. So he's started a campaign to convince them to give more.
Dick Smith: Now, I've written to Rupert. I know him.
That's Rupert Murdoch he's talking about.
Smith: And he has made out to me that he does give some money away, but it's done confidentially. But talking to his staff, Rupert Murdoch's staff, they say, "No, Dick, there's not a generous bone in his body. It is all about ultimate greed and just making more and more money."
Smith continued with the gentle approach, hoping a bit of quiet persuasion would make Australians open their wallets like the rich Americans you hear about so often.
Smith: But I've not succeeded. I've completely failed. So now I'm going publicly and outing these people, and at least embarrassing them, hoping that one will break ranks and fulfill obligations of putting something back into society.
As you can imagine, this shame game didn't sit so well with everyone. There've been articles.
Matthew Beeche: So, the article that I believe you're referring to was "Is Dick Smith Just A D**khead?"
Writer Matthew Beeche thinks this is a bad idea.
Beeche: I think he's stirring the pot a bit.
It's too soon to say how well Smith's shaming routine will work. But it made me wonder: when it comes to charitable giving, what does work? I asked someone who knows.
John List: I'm John List, and I'm a professor at the University of Chicago. And I focus on the economics of charity.
All right, so let's say you're trying to raise money for -- oh, I don't know, a public radio station. So John List discovered that a good way to start raising money is by telling people that you've put some of your own money in the pot already -- you know, seed money.
List: So, what we found is that the more seed money that you had not only induced more people to give, but those people actually gave more money.
All right, so seed money works -- what about the old matching-gift trick?
List: Now, what the experts would tell you is that the larger the match is, the more effective or the more dollars you will raise. And that's just flat out false.
What List found is that a 1-to-1 match works well, but increasing the match to 2-1 or 3-1 doesn't do any additional good. But here's something that is worthwhile: raffles. If you're serious about raising money, offer people a prize.
List: And just by doing that you end up increasing gifts by as much as 100 percent.
And here's my favorite. It's called the "once-and-done." It lets you opt out.
List: It's giving the control of the relationship to the solicitee.
Here's how it works. Since charities know it's annoying to constantly get solicitations in the mail, they give you a choice: if you send in some money today, and check a box opting out, we'll never bother you again.
List: People who are given the once and done proposition, they not only give more money in that particular fund-raising drive, but they do not check the box. And in future months they end up giving more money that people who never received the once-and-done proposition.
Since John List seems to know all the charity tricks that work, I asked him about Dick Smith, the Australian electronics mogul, and his shaming idea:
Dubner: Do you think that is a good strategy for fundraising? Or is Dick Smith just, as one Australian columnist put it, just a d**khead?
List: Well, I think the strategy is probably good in the short run, but I wonder in the long run if those millionaires or billionaires might flee the continent and seek refuge elsewhere. And then you have, you have a short run gain, but a long run loss.
I'm Stephen Dubner for Marketplace.