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Does the introduction of ratings reduce giving? Evidence from charities

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  • Laura E. Grant

Abstract

The largest charity‐ratings organization evaluates thousands of charities with combined annual donations of $100 billion. Because charities' initial rating occurs at different times, in random order, I can estimate how the introduction of the ratings affects giving. Donations decrease by 5%–9%, on average. The pattern is intuitive: Donations to highest‐rated (4‐star) charities are stable. Yet for each consecutive star lower, donations decrease, with 1‐star charities losing 12%–14%. I also impute each charity's ratings for years before being rated determine the effect of prior information. Annual losses for the rated charities are approximately $2 billion. Several reasons for the losses are discussed including salience of information, donor expectations, and charity visibility.

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  • Laura E. Grant, 2021. "Does the introduction of ratings reduce giving? Evidence from charities," Economic Inquiry, Western Economic Association International, vol. 59(3), pages 978-995, July.
    • Handle: RePEc:bla:ecinqu:v:59:y:2021:i:3:p:978-995
    DOI: 10.1111/ecin.12920
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    Cited by:

    1. Oxley, Jonathan, 2022. "Does additional mandatory reporting alter charity or donor behavior? Examining the 2006 Pension Protection Act," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 738-751.

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