The Effects of Seed Money and Refunds on Charitable Giving: Experimental Evidence from a University Capital Campaign

Abstract

We test two recent theories on the subject of charitable fundraising in capital campaigns. Andreoni (1998) predicts that publicly announced seed contributions can increase the total amount of charitable giving in a capital campaign. Bagnoli and Lipman (1989) predict that another technique for increasing contributions is a promise to refund donors' money in case the campaign threshold is not reached. Using a field experiment in a capital campaign for the Center for Environmental Policy Analysis at the University of Central Florida, we present evidence on both of these predictions. Data from direct mail solicitations sent to 3000 Central Floridian residents confirm the basic comparative-static predictions of both theories: total contributions increase with the amount of seed money, and with the use of a refund policy. A change in seed money from 10% to 67% of the campaign goal resulted in nearly a sixfold increase in contributions, while imposing a refund increased contributions by a more modest 20%. Seed money has a statistically significant effect on both the proportion of people choosing to donate and on the average gift size of those who donate, while refunds have a statistically significant effect only on the average gift size. These results have clear implications for practitioners in the design of fundraising campaigns.