Sunday, November 17, 2013

A Theory of Good Intentions

Paul Niehaus alerted me to his new paper while I was at UCSD, "A Theory of Good Intentions".

The abstract reads:

Why is other-regarding behavior often misguided? I study a new explanation grounded in the idea that altruists want to think they are helping. Frictions arise because perception and reality can diverge ex post when feedback is limited (as for example when donating to international development projects). Among other things the model helps explain why donors have a limited interest in learning about effectiveness; why intermediaries may market based on need, effectiveness, or neither; and why beneficiaries may not be able to do better than accept this situation. For policy-makers, the model implies a generic tradeoff between the quantity and quality of generosity.

In the Intro he writes

Economists have predominantly taken the view that funders want to be effective but find it difficult to learn how. [..] This paper examines an alternative (and complementary) interpretation: funders do not want to be more effective. Instead, they want to think that they are effective. Yet perception and reality can diverge. To illustrate the core premise, consider donating to help feed malnourished African children. This induces agreeable thoughts of children eating. Now suppose you learn that the charity in question is ineffective -- perhaps an expose reveals serious fraud. Presumably this reduces your satisfaction. What is more interesting is the counterfactual: if you had not learned of the fraud, you would have continued to experience “warm glow” (Andreoni, 1989) thinking about your impact even though in reality no such impact existed. Your altruistic preferences cannot literally be over children’s outcomes as these occur on another continent, outside of your experience. Instead, perceptions count. This raises the question: how and how well will learning work in a market where perceptions are the product?

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