Charity,signaling,and welfare

Abstract

Voices on the political right have long claimed that the welfare state ought to be kept small, and that charities can take over many of the tasks involved in helping those at the bottom of society. The arguments in favor of this claim are controversial, but even if they are accepted at face value the policy proposal remains problematic. For the proposal presupposes that charities would, in fact, be able to raise enough money to provide adequate help to those in need, and therefore assumes that charities are able to very significantly increase the number and/or size of donations they receive. We argue that there are good reasons for doubting that charities will be able to do this. Our argument turns on the fact that the most powerful strategy for eliciting donations—namely, allowing donors to use their donation to signal their pro-sociality—has an inbuilt upper limit. If too much emphasis is placed on the signaling opportunities donating to charity provides, donating no longer functions as an effective signal and the motivation to donate declines.