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Does the introduction of ratings reduce giving? Evidence from charities
Author(s) -
Grant Laura E.
Publication year - 2021
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12920
Subject(s) - salience (neuroscience) , order (exchange) , visibility , social psychology , economics , psychology , demographic economics , finance , geography , meteorology , cognitive psychology
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.