How Can Bill and Melinda Gates Increase Other People’s Donations to Fund Public Goods?

A simple theory is developed which formally describes how charities can resolve the information asymmetry problems faced by small donors by working with large donors to generate quality signals. To test the model, two large-scale natural field experiments were conducted. In the first experiment, a charity focusing on poverty reduction solicited donations from prior donors and either announced a matching grant from the Bill and Melinda Gates Foundation, or made no mention of a match. In the second field experiment, the same charity sent direct mail solicitations to individuals who had not previously donated to the charity, and tested whether naming the Bill and Melinda Gates Foundation as the matching donor was more effective than not identifying the name of the matching donor. The first experiment demonstrates that the matching grant condition generates more and larger donations relative to no match. The second experiment shows that providing a credible quality signal by identifying the matching donor generates even more and larger donations than not naming the matching donor. Importantly, the treatment effects persist long after the matching period, and the quality signal is quite heterogeneous—the Gates’ effect is much larger for prospective donors who had a record of giving to “poverty-oriented†charities. These two pieces of evidence support the model of quality signals as a key mechanism through which matching gifts inspire donors to give. [BREAD Working Paper No. 332]. URL:[http://ipl.econ.duke.edu/bread/papers/working/332.pdf].