CLEARLY OVERHEAD: AN EXPERIMENTAL STUDY OF THE EFFECTS OF TRANSPARENCY ON CHARITABLE GIVING

Abstract

Charities often face a dilemma: Their donors tend to be averse towards high overhead costs, yet many of these charities require these costs to sustain their operations. While there have been attempts in overcoming said aversion, past research has barely explored understanding donors’ overhead aversion. In this paper, an experiment is conducted amongst undergraduates to study whether reference dependence can improve donation rates amongst charities with varying overhead levels. Reference dependence is employed via revealed transparency of charity overhead costs to participants. The study finds existence of overhead aversion, with charities with high overhead costs facing a fall in donation rates by 18.57% when compared to those with low overhead costs. Meanwhile, donation rates amongst high overhead charities are 27.05% higher for transparent charities than opaque charities. This study therefore finds substantial evidence for overhead aversion and a potentially effective measure in overcoming aversion through overhead transparency.