Fundraising under two-dimensional asymmetric information: the case of mindless donations

The paper develops a model of charity’s choice of fundraising method under two dimensions of asymmetric information, quality and purpose. The main implication from this model is a separating equilibrium where the higher-quality charity uses a traditional fundraising method, while the lower-quality one exploits a low-stakes, take-it- or leave-it, ‘mindless’ method. Empirical results support the hypothesis that charities of lower quality are more likely to adopt the mindless fundraising method. Even so, consumers still choose to give in the equilibrium, due to the small requested amount of mindless donations, which disincentivizes serious thinking by consumers. The mindless method, along with purpose uncertainty, has the potential to alleviate the free-riding problem that is characteristic of public good provision and is, therefore, welfare improving.