Foundation
Private providers of public goods, such as charities, invariably enlist fund‐raisers to organize and collect contributions. Common in charitable fund‐raising is seed money, either from a government grant or a group of “leadership givers,” that launches the fund drive and generates additional gifts. This paper provides a theoretical basis for fund‐raisers and seeds for charity. The primary assumption is that there is a range of increasing returns at low levels of good public provision. It is shown that fund‐raisers have a natural and important role and that sometimes only a small amount of seed money can grow into a substantial charity [Andreoni, p. 1190]. The dilemma is that if the lead giver can deceive others into believing the charity is of higher quality than it truly is, these followers will make larger contributions, benefiting the leader. Hence, the leader must give a considerable amount to convey a credible quality signal. This sets up a war-of-attrition game for who will pay the cost to signal the quality.
Since the wealthy have the lowest opportunity cost of providing the signal, they, in equilibrium, move first to provide the signal of quality with considerable gifts [Andreoni, p. 18]. A trust whose purposes are regarded by the law as being charitable. Charitable trusts enjoy many advantages, including exemption from many forms of taxation, the ability to claim the tax paid by its donors by way of gift aid, lack of necessity for there to be human beneficiaries (see beneficiary principle), and the nonapplication of the rule against perpetual trusts [Law, p. 148]. An entity, trust, or gift established or made for a charitable purpose or purposes; a charitable purpose. The specialized common law legal meaning of charitable purpose differs from the general meaning. It is not confined to purposes motivated by Christian love or benevolence or helping the poor [Mann, p. 150].
Law, J. (2022). A Dictionary of Law (10 ed.) Oxford: Oxford University Press. Mann, T. (Ed.) (2017). Australian Law Dictionary (3 ed.) Oxford: Oxford University Press.
Andreoni, J. (2006). Leadership Giving in Charitable Fund-Raising. Journal of Public Economic Theory, 8(1), 1–22. Retrieved from doi: 10.1111/j.1467-9779.2006.00250.x
Andreoni, J. (1998). Toward a Theory of Charitable Fund‐Raising. Journal of Political Economy, 106(6), 1186–1213. Retrieved from: doi: 10.1086/250044