Donations

Andrea Buraschi and Francesca Cornelli

London Business School, Institute of Finance, Sussex Place, Regents Park, London, NW1 4SA, United Kingdom. First Draft: 21 June 2002 This version: 16 August 2003

Abstract:
This paper is an empirical study of the motives for charitable donations. It is based on a unique dataset from the English National Opera (ENO) that includes detailed micro-level information on individual donations, ticket purchases, and consumption of fringe benets. This allows us to examine the extent to which individuals donate to fund a public good here, new productionsor to have access to a private good here, fringe benets. We nd evidence that individuals behave as if they feel pivotal to providing a public good. Moreover, we nd that the relative importance of these motives varies cross-sectionally on income level. Low income individuals, who buy cheap seats, are more sensitive to the private good motive. These results are important to show that individuals behave as if they are critical even with a large number of potential donors present. They may also help charities and governments to develop respectively their fund-raising campaigns and grant policies.

JEL classication: D1, D64, H41, L3. Keywords: Donations, warm-glow, altruism, public good.

We are very grateful to the English National Opera for providing us with their data and in particular to Bob Boas, Kirsty Lynn, Maddy Morton and John Ward for spending time to explain how the ENO works. We thank Luca Anderlini, Leonardo Felli, Julian Franks, Denis Gromb, Richard Portes, Randi Rosenblatt, John Straub and participants at seminars at the Econometrics Society 2003 meetings in Washington, the Econometric Society European 2002 meetings in Venice, the Latin American Econometric Society 2002 meetings in Madrid, London School of Economics, London Business School, University College of London, Erasmus University of Rotterdam for helpful comments and suggestions. We thank John Pedersen and Andrea Pederzolli for research assistantship. We particularly thank Steve Matchin for giving us access to his data set on expenditure by postcode and Katy Graddy for her crucial contribution to this project. The project was supported by an LBS Research Grant. Tel: +44-207-262 5050; Email addresses: aburaschi@london.edu and fcornelli@london.edu.

Donations

Abstract:
This paper is an empirical study of the motives for charitable donations. It is based on a unique dataset from the English National Opera (ENO) that includes detailed micro-level information on individual donations, ticket purchases, and consumption of fringe benets. This allows us to examine the extent to which individuals donate to fund a public good here, new productionsor to have access to a private good here, fringe benets. We nd evidence that individuals behave as if they feel pivotal to providing a public good. Moreover, we nd that the relative importance of these motives varies cross-sectionally on income level. Low income individuals, who buy cheap seats, are more sensitive to the private good motive. These results are important to show that individuals behave as if they are critical even with a large number of potential donors present. They may also help charities and governments to develop respectively their fund-raising campaigns and grant policies.

JEL classication: D1, D64, H41, L3. Keywords: Donations, warm-glow, altruism, public good.

Introduction

Donations are a crucial source of funds for many non prot organizations such as museums, universities, and hospitals. In 1997, they accounted for 11.4% of the non-prot sectors revenues, compared to 7.9% from government grants. Charitable giving represents a signicant fraction of personal income as well. In the U.S. itemized individual giving totalled $123Ml in 1999, about 2.1% of income.1 Understanding the motives for donations is important for charities when designing fund raising campaigns, and for policy makers when deciding both public subsidies to charities and tax treatment of donations. Why do people donate? The economic literature distinguishes three dierent motives. (i) The traditional reason is altruism. Altruism incudes dierent types of motives. (a) One possibility is that individuals care about other peoples utility (for examples, donations to improve the welfare of the poor). (b) Another possibility is that people may donate because they are consumers of the service provided by the charity and they want to ensure its provision or improvement (for examples, donations to a theater). These apparently dierent reasons have in common the fact that the service provided by the charity is a public good : when an individual makes a donation, he also increase the utility of all other individuals who care for the same charitable service. Inherent in a public good provision, however, is a free-riding phenomenon: instead of donating, an individual may rely on other people donations. In a large economy, even altruistic individuals should theoretically have the incentive to reduce their average donation to zero as the size of the population (and thus of potential donors) increases. Because of free-riding, several papers (see Andreoni (1988) and Ribar and Wilhelm (2002)) argue that altruism cannot be the only reason for donations. As a consequence, another motive for donating has been presented: one may derive utility from the act of donating itself. (ii) This is known as warmglow or joy-of-giving (see Becker, 1974 and Andreoni, 1989 and 1990). In such case an individual will continue donating even in a large economy.2 Finally. (iii) the private good motive theory suggests that people donate to access private benets. These benets can be in the form of social status improvement e.g. when their names are publicized in a donors list (Harbaugh (1998a, 1998b)), access to a social network of donors, or access to special events, such as a gala dinner or dress-rehearsal. In this paper, we take advantage of a unique and extremely detailed dataset to identify the existence and importance of these motives. The dataset has been constructed by merging both the box-oce and donation records for the English National Opera (ENO), one of the two major opera houses in London. We observe 358, 026 individuals donations, ticket purchases and consumption
Based on individual income tax returns, National Center for Charitable Statistics. Another advantage of this motive is that it is compatible with the empirical evidence of partial crowding-out and the fact that donations are sensitive to income redistribution.
2 1

of fringe benets between 1994 and 1999. The data also allows us to account for several other individual characteristics (e.g. wealth or geographical distance from the ENO/other donors) and has the additional advantage that it covers all individuals with an interest in ENO. This includes non-donors who can be used as a control group. The spirit of the empirical analysis is as follows: the donation and consumption choices in the data set allow us to identify private and public good motives. In the private good theory, donations and consumption of private goods should be positively correlated. Similarly, the public good motive should yield a positive correlation between donations and consumption of the public good. Finally, if donations were motivated solely by joy-of-giving, one should expect no systematic correlation between donations and consumption of either private or public goods. We identify private and public goods consumed by donors and non-donors of ENO as follows: The private goods available to donors are fringe benets such as dress rehearsals, gala concerts, special dinners, special events, and social status (publication of their names on the donors list or access to a particular network of donors). The public goods that we consider are the new productions oered by ENO. New productions are either operas that have never been staged before, or well known operas that are presented in a new version, requiring new stages, costumes, light design etc. The public good aspect may not be obvious since opera performances are excludable. However, their production has a public good nature due to their cost structures. Commissioning new productions entails substantial xed costs.3 Since box oce revenues cannot cover these xed costs, donations, together with public grants, help fund them, making it more likely that a new production will be staged. Funding the xed costs is a public good because the opera can then be consumed by others (Hansmann (1980), Cornelli (1996) and Andreoni (1999)). This public good aspect of donations is stressed explicitly by the ENO which states that it uses donations to stage new productions: Figure 1 shows a leaet about Friends of the ENO, stating that ... When you become a Friend, a substantial proportion of your membership goes to the staging of new productions. This suggests that donors are aware that donations will fund new productions and that ENO believes that reinforcing the public good motive is an eective way to motivate people to donate.4 We develop a model where individuals choose which operas to attend and how much to donate, under a budget constraint. This allows us to illustrate what type of behavior is consistent with the public and private good motives since individuals are aware that their donations help fund new productions and provide access to fringe benets.
3

The relationship between donations and new

production attendance depends on two opposing eects: a complementary and a substitution eect.
The ENO has a reputation for being more avant-garde both in the choice of operas and in the staging of new productions. Examining the ENO and the Royal Opera (the other major opera house in London) Frank and Wrigley (2001) conclude that these opera houses sacrice net prots from ticket sales to stage newly-commissioned productions. 4 In private conversations, the ENO management conrmed that in the past a shortfall of donations induced them to cancel some new productions.

Donations act as a complement to new production consumption since donations increase the number of new productions that one can attend. Donations act as a substitute, however, since they reduce the income available with which to purchase tickets. The net eect depends on ones income level. High income individuals buy more expensive seats in equilibrium and attend new productions more frequently. For them donations act more as a complement. For low income individuals, conversely, donations act more as a substitute. We examine and compare the empirical consumption pattern of donors and non-donors. We use the extent to which donors attend new productions and consume fringe benets to assess the importance of the public and private good motives respectively. We nd that compared to non-donors, donors show a higher preference for new productions and fringe benets. Moreover, two distinct patterns of behavior emerge among the subsamples (i.e. low income vs high income individuals). For individuals buying cheap tickets the public good motive is less relevant than the private good one. For individuals buying expensive seats, the fringe benets are less important than for individuals buying cheap seats. However, high income individuals show a stronger preference for a dierent private good/benet: joining a social network of donors. Some of the implications of our results are as follow: First, the public good motive is in fact important for donations. Although important, as other experimental evidence has shown, a pure joy-of-giving motive would not imply any correlation between the preference for new productions and the probability of becoming a donor (or the amount donated). This can be reconciled with the free-riding argument that a public good motive should induce zero donations in one of two ways: (i) individuals feel that they are pivotal despite the large number of potential and actual donors. (ii) The joy-of-giving motive initiates the urge to donate, but is followed by a choice of where to direct that donation. Altruism and public good contributions may become relevant at this stage as individuals will donate to the charity whose services they care about most and where they feel they have a positive probability (albeit small) to make a dierence (i.e. to be pivotal). This implies that fund raising campaigns might be more eective when funds are tied to specic items (see Cornelli, 1996) or by using matching funds (see Andreoni, 1999). Second, the private good motive exists as accessibility to both fringe benets and a social network. Although oering fringe benets induces donations, it also provides a substitution eect whereby individuals buying cheap tickets reduce their ticket expenditure when they start donating. A charity should therefore ensure that the cost of the fringe benets, together with the lost revenues, is not higher than the minimum donation necessary to access these benets. The substitution eect also arises through the crowding-out eect, in which an increase in public grants causes private donations to decrease. Our ndings suggest that for cheap ticket buyers the crowding out eect could lead to increased ticket expenditure, generating more funds for the theater. The fact that this 3

holds for cheap ticket buyers but not for expensive ticket buyers suggest that the composition of the donor pool may be important when evaluating the overall eect of public grants. Third, the ndings that a large proportion of donors are those who most value new productions agrees with models of public good provision under imperfect information. For instance, Bliss and Nalebu (1984) and Palfrey and Rosenthal (1984) characterize Bayesian equilibria in which donations increase with an individuals valuation for the public good. This is in contrast to models of perfect information (for example, Bagnoli and Lipman (1989)) in which any individual can be instrumental and donations do not depend on valuations. We also take advantage of the fact that ENO categorizes donors into dierent classes, depending on their donation level, to look at donations that exceed the threshold required for a given donation class. If a donor were concerned only about fringe benets and appearing on the public donor list of the charity, he would never donate in excess of the minimum of that particular class. Since excess donations cannot be motivated by the private good motive, we use excess donations to assess the presence of the public good motive versus the joy-of-giving. We nd that excess donations are positively correlated with the preference for new productions. This is additional evidence conrming the importance of the public good motive. Finally, we explore the robustness of the previous cross-sectional results in two ways. First, we conduct a panel data regression with xed eects to capture potential unobservable variables. Second, we examine the time-series dimension of donor behavior. We compare the behavior of individuals before and after they start or stop donating and nd that, on average, individuals increase (decrease) their ticket expenditure and attendance to new performances in the year in which they start (stop) donating. This again reinforces the nding with regard to the public good motives and the substitution eect. Most of the existing evidence on donations is based on experimental data: Harbaugh and Krause (1999), Andreoni and Petrie (2001) and List and Lucking-Reiley (2002). They show that individuals in experiment tend not to free-ride while Andreoni (1995) shows that donating behavior may be due to both kindness or confusion. One primary focus for charitable giving empirical research has been estimating price and income elasticities of contributions (see Clotfelter, 1985). Another has been the crowding-out eect. Most of these studies use data on donations aggregated at the national level, yielding only indirect evidence on individual preferences.5 Important exceptions are Kingma (1989), Kingma and McClelland (1995) and Straub (2002) who use data on household level public radio donations to identify the crowding-out of government funding. The paper proceeds as follows. Section 2 presents a model of individuals joint consumptiondonation decision and derives predictions. Section 3 describes the data set and gives details about
5

See, e.g., Weisbrod and Dominguez (1986), Posnett and Sandler (1989), and Khanna and Sandler (2000).

ENO. Section 4 provides summary statistics. Section 5 presents the empirical results. Section 6 focuses on the excess donations within a class of donors and Section 7 looks at changes in individual consumption when he starts or stops donating. Section 8 concludes.

A Model of Individual Donations

In this section, we present a model of an individuals donation and consumption choice. The model is used to derive a set of jointly consistent working hypotheses that we test in the empirical section of the paper. We look at the relation between consumption and donation choice if an individual feels pivotal and donates to fund a public good. We thus start assuming that the individual believes that his contribution will have a positive eect on the number of new productions oered. This assumption is consistent with ENOs claim in their fund-raising eorts that the main use of donations is to support new productions (Figures 1). We then derive consumption implications which identify the motives of donations.

2.1

The Model

Consider an opera house producing an exogenous number, N , of performances each year. Two types of productions exists: regular (i.e. replicas of existing productions) and new productions. Out of the N performances, the opera house chooses to produce S new productions, at an additional xed cost M per new production. For each performance, two types of seats are available: low or high quality, with corresponding prices p1 and p2 such that p2 > p1 . With no loss of generality, we normalize p1 = 1. For simplicity we assume that ENO is a price taker. The opera house does not have complete freedom when setting prices, since it competes with other entertainment establishments (such as theaters or concerts halls).6 Finally, each year the opera house oers R special events, such as dress rehearsals, lunch meetings with singers and cocktail receptions which are available only to individuals who donate more than a minimum amount d 0. An individual attends n1 performances in low quality and n2 in high quality seats. Hence, n1 + n2 N (1)

attend special events. Let r be the number of special events attended by the individual, with r R and r = 0 if d d. The individual budget constraint is: p1 n1 + p2 n2 yi di
6

The individual chooses a donation amount di 0. If he donates an amount larger than d, he can

(2)

English National Opera competes not only with theaters, concert houses, the Royal Opera House at Covent Garden and the occasional touring opera companies. Allowing the ENO to set prices would make the analysis more complex, since the prices could aect donations. This would not, however, change our basic conclusions.

where yi is individual is income.7 The utility function of individual i is Ui (n1 , n2 , r, (S), di ) (3)

where (S) is a function capturing the additional marginal benet from attending a new production rather than a regular production. Some people prefer to attend new productions, for a more modern staging, for novelty purposes, for cultural reasons, or simply because they have already attended the repertory productions. Others may have no preference for new productions. Therefore, for individuals who do not derive additional utility from attending a new production, (S) = 0 for any S. For those with a preference for new productions we assume that 0 (S) > 0. The amount donated di is a direct input into the utility function. This is the joy-of-giving motive: individuals derive utility from the act of donating. Since this eect is independent of how often the individual attends opera performances, we assume Finally, we assume that
U 2 ni r U 2 di ni

= 0.

= 0, i.e. that attending fringe benets does not aect the consump-

tion of normal performances. While this is surely true of fringe benets such as gala or special events, one may argue that dress rehearsals may be for some people a substitute to regular performances. We abstract from that eect.8 Consider the opera house choice. We assume that the opera house maximizes S subject to its budget constraint. Since a new production entails an additional xed cost M , S increases with the total donations collected.9 Therefore, the individual rationally anticipates the opera houses optimal decision: SM = X
i

di

(4)

As a result, S is an increasing function of the resources available (in particular, total donations). The number of special events, R, does not depend on such resources. In fact, the choice of special events is likely to be determined by exogenous circumstances, such as singer availability. Moreover, special events are not costly with respect to the opera staging (for instance, dress rehearsals entail no extra costs to the opera house). The timing is as follows. At t = 0 each individual chooses how much to donate. At t = 1, after collecting donations, the opera house chooses the number of new productions S. At t = 2, individual i, given his donation and knowing S, chooses his attendance. If he chooses to donate, he also decides which special events to attend.
More precisely, yi is the income available for entertainment expenditure. The fraction of income dedicated to entertainment expenditure depends on individual preferences. For simplicity, we do not formally model the consumption of other goods and simply assume that yi is a constant fraction of total income. 8 Allowing r to be a substitute for regular performances does not qualitatively aect the donation choice. For simplicity, we do not formally explore this eect. 9 We ignore the possibility of an intertemporal budget. This would make the rules more complex but in general would not aect the basic result that S increases with donations.
7

knowing S, chooses n1 , n2 and r to maximize (3) subject to (1) and (2). substitute y n1 = (i di ) p2 n2 .

We solve the model by backwards induction. At t = 2, individual i, having donated di 0 and

Assume constraint (2) is binding (we show later that this is always the case), we can then (5)

into the objective function, so that the rst order conditions with respect to n2 and r are U U dU = p2 dn2 n2 n1 U r If
U n2

0 = 0

(6) (7)

donation, yi di , is low. These individuals are budget-constrained and purchase cheap seats. If instead
U n2

U < p2 n1 , then n = 0 and n = yi di . This occurs when an individuals income net of 2 1 U p2 n1 , then yi di n > 0 and n = yi di p2 n . Thus individual buys 2 1 2

expensive seats.

both expensive and cheap seats. A special case is n = yi di in which case an individual buys only 2 At t = 1, the opera house maximizes the number of new productions S. The ENO zero prot condition implies that S is an increasing function of donations. At t = 0, individual i chooses to donate di to maximize (3) subject to (2) and knowing that S is an increasing function of donations, with n1 = n and n2 = n . We rst ignore the constraint that 1 2

d d implies r = 0. If the rst order condition implies di d, then we can indeed disregard the constraint. Otherwise, we explicitly consider the constraint. The rst order condition with respect to di is: U U dn U dn U 0 dS 1 2 (S) + + + di n1 ddi n2 ddi ddi (8)

The rst term captures the warm-glow motive: an individual who derives utility from the act of giving is more likely to donate and, in equilibrium, will donate more. The second and third terms capture the substitution eects and are non-positive: when an individuals budget constraint is binding, his donations reduce the budget available for purchasing tickets. In that case, donations and ticket purchases are substitutes. The second term captures this eect on the number of low quality performances attended, n , while the third term captures this eect on the high quality 1 performances attended, n . At an interior solution, this third term is zero. The fourth term captures 2 the fact that a larger donation allows the opera house to increase the number of new productions. This term is positive only if 0 (S) > 0, i.e. if the individual prefers new productions and feels pivotal. Both the second and fourth term increase with attendance, while the substitution eect decreases with attendance, since the utility is concave. The rst term does not depend on attendance at all. Therefore, as attendance increases so does the expression in (8). This implies a positive correlation 7

between attendance and both probability to become a donor and the amount donated. Moreover, since the rst order condition (8) increases with yi , income is positively related to both the probability to become a donor and the amount donated. Finally, if (S) > 0 the rst order condition increases by the fourth (positive) term (Hypothesis 2). who also (or only) buy expensive seats, Note that for individuals buying only cheap seats, n = yi di , and 1
dn 2 ddi dn 1 ddi

< 0,

dn 1 ddi

for individuals buying expensive seats (Hypothesis 3). The intuition is the following: to increase his

Therefore, all other things equal, the rst order condition is more likely to have a solution at d d

= 1

dn p2 dd2 , i

which is between zero and -1.

= 1. For individuals

donation, each individual has to reduce his expenditure. If he is already buying only cheap seats, he can only reduce attendance. If he is buying expensive seats, however, he can shift from expensive to cheap seats, which has a less negative impact on his utility. This implies that the public good motive is less relevant for individuals buying only low quality seats (i.e. low income individuals), since for those individuals the substitution eect is larger and counterbalances the desire for additional new productions. Now consider the possibility of donating to have access to fringe benets. Assume that the rst order condition described above were negative at di = d.10 In that case the only reason an individual would donate is to gain access to special events. An individual donating for this reason will never donate more than the minimum amount d. Moreover, d 0 if and only if the utility from donating d and consuming fringe benets compensates for the reduction in the income available for ticket

expenditure. If this is true, d = 0. Otherwise, d = d. This condition is more likely to be true the i i higher the individuals income yi . In equilibrium we nd that individuals who have a higher attendance and/or income are more likely to donate. We also nd a substitution eect through the budget constraint: a larger donation reduces the income available to buy seats. Two types of behavior exist in equilibrium. Individuals with low income buy only cheap seats while individuals with high income buy expensive seats (and possibly some cheap ones). We nd that individuals buying only cheap seats are more likely to donate mainly to gain access to special events (which implies they will donate only the minimum amount). Individuals buying expensive seats, however, are more likely to donate to increase the number of new productions S. Moreover, they show a smaller substitution eect than individuals buying cheap seats. We can thus derive some empirical predictions about which variables will aect the probability that a customer becomes a donor and the amount that he will donate. These empirical predictions dier between those with high and low income, allowing us to derive additional testable implications: Hypothesis 1 (Public Good): The probability of becoming a donor and the amount donated are positively correlated with the preference for new productions ( ).
10

If they were already non-negative, the fringe benets motive would be irrelevant.

This is the public good motive. Note that if donors are instead motivated only by warm-glow or the private good motive such a correlation would not arise. Hypothesis 2 (Private Good): The probability of becoming a donor (but not the amount

donated) is positively correlated with the preference for fringe benets. This is the private good motive. Note that if donors are instead motivated only by the public good motive or warm-glow such a correlation would not arise. Hypothesis 3: There is a substitution eect between donations and attendance: the larger is the amount donated, for a given level of income, the smaller is the amount spent to attend. Hypothesis 4: The positive correlation between the amount donated (or the probability of

becoming a donor) and the preference for new productions is stronger for individuals buying expensive seats than for individuals buying only cheap seats. Hypothesis 5: Individuals who donate the minimum amount are the most sensitive to consuming fringe benets. Moreover, if there are dierent classes of donors and a higher class is associated to more fringe benets, the following implication holds: Hypothesis 6: The probability to donate enough to have access to a higher donors class is positively correlated with the preference for fringe benets. This correlation is stronger for individuals buying only cheap seats than for individuals buying expensive seats.

The Data Set

Our data set was obtained from the English National Opera (ENO), a British registered charity, and covers the behavior of 358,026 individuals who either made a donation or purchased a ticket from ENO between 1994 and 1999. Since ENO assigns a unique identication number to each individual (more specically to the entire household), we can merge the data from the box oce and fundraising department, and construct a dataset that contains detailed information on ticket purchases (type of production, quality of the seat, price, number of tickets), donations, and the eective consumption of fringe benets. An important advantage of our dataset with respect to previous studies is that it covers not only donors but also all individuals with an interest in ENO performances. This allows us to use the non-donors as a control group. On average, ENO stages 18 operas per year, for a total of about 190 performances. Of these operas, usually 7 or 8 are new productions. Donations are the most important component of ENOs 9

budget, even more than revenues from ticket sales. For instance, in 1997 revenues from ticket sales amounted to 7.5 million pounds while donations amounted to 10.2 million pounds. The importance of donations is further evident if one considers that the current endowment for ENO is 14.1 million pounds. Given that the current expenditures level is 25 million pounds, ENO would nd it dicult to nance two seasons without donations, even using its endowment. Our analysis focuses on individual donations. At ENO, individual donations are larger than corporate donations. For instance, in 1997 corporate donations were 2.9 million versus 7.3 million pounds of individual donations. There are two types of productions: regular and new productions. A regular production is the staging of an opera which has already been oered in previous years and is in the repertory. A new production is the new staging of an opera. ENO is known for being active in developing new productions. These are typically more expensive than regular productions since ENO commissions the work to a director, a set designer, a costume designer and a lighting designer (and often the translation into English of the original libretto). For regular productions, these xed costs would have already been paid in previous years. In letters soliciting donations, ENO emphasizes explicitly the fact that money from donations is used to support new productions. Table 1 describes the Gift Program of ENO, which has four levels of Friends. The minimum donation to be part of the lowest level of friends is 25 pounds, although donations can be (and many are) lower. In addition to the four Friend levels, there are four higher levels of membership not described in Table 1. Associated with this structure are similarly graduated packages of fringe benets. These include advance information about performances at ENO, access to rehearsals, invitations to talks, and for the most generous donors, invitations to the Annual Fellows Dinner. Our data includes the individuals postcodes. The UK postcode is a very precise description of a particular address. For central London, a postcode identies a household to the precision of a street at which it resides. For rural areas, a postcode identies a set of at most 80 households. The UK Bureau of Consumption provides data that associates to each postcode the average household expenditure. We use this as a proxy for the income. The data set associates average expenditure to a postcode up to the last two digits. In central London this corresponds to the average expenditure of a block. In the U.K., unlike in the U.S., during the period of our study most donation choices are unaected by tax implications. The so called Gift Aid scheme was introduced in 1990 and later modied in 1991. According to this scheme, a donor can claim tax relief on the amount donated for the dierence between his/her marginal tax rate and the basic-rate. The charity can reclaim a relief in proportion to the basic tax rate. However, from 1993 to April 2000 (i.e. our sample period) this tax relief was available only for donations exceeding 250 pounds, which is an extremely high threshold with respect

10

to the average size of the gifts to the ENO (as we show in the next section). Moreover, in order for the donations to be tax deductible the scal identity of the donor had to be certied: phone and internet donations were not eectively accepted as part of the Gift Aid scheme. These restrictions imply that about 97.8% of the donations in our data are not tax deductible, so that the eective cost of the donation is independent of the (unobservable) level of the taxable income.

Summary Statistics

This section reports summary statistics about individual behavior. To avoid individuals who may be acting as agents, we exclude individuals buying more than 6 tickets for the same event. We obtain a data set with 72,193 donors (i.e. donor households) and 285,833 non-donors. To avoid outlier problems, we exclude the top 2% of all donations, i.e. all donations above 330 pounds. Figure 2 shows the distribution of all donations before dropping the top 2%. Less than 0.05% of the donations are above 1,000 pounds. Table 2 presents summary statistics on the average annual expenditure and the number of tickets bought, distinguishing between attendance to regular and new productions. For both regular and new productions, the average expenditure of donors is more than twice that of non-donors. On average, donors spend 113 and 114 pounds for regular and new performances respectively, compared to 51.20 pounds and 31.77 pounds for non-donors. The number of performances attended shows a similar pattern. On average, donors buy 4.28 and 4.17 tickets for regular and new productions respectively compared to 2.18 and 1.39 for non-donors. All dierences are statistically signicant. The dierence between the attendance of donors and non-donors is much larger for new productions, suggesting that donors attend, in proportion, more new productions.11 In Figure 3, the histogram of the attendance distribution for new productions by donors and non-donors provides a clear picture. A large number of non donors, i.e. 53%, never went to a new production. In comparison, only 19% of the donors did not attend any new production. Moreover, the overall distribution of the donors is shifted to the right compared to that of the non-donors. For instance, 8% of the donors purchase 8 tickets for new productions, while only 2% of the non-donors display the same behavior. In Table 3 we stratify the sample according to the seat price. We rank the individuals according to the average price paid per seat. An individual is classied as buying expensive (cheap) seats if the average price is in the top (bottom) three deciles of the price distribution, corresponding to
By total attendance we mean the number of dierent performances attended, independently of the number of tickets bought for each performance. In this way we abstract from the possibility that an individual would buy tickets for friends to see the same performance (and get reimbursed). We have repeated the same analysis also using, as a measure of attendance, the number of tickets bought. We nd no qualitative dierence. When we measure the annual expenditure, instead, in order to dierentiate the analysis, we look at total expenditure, i.e. we take into account the number of tickets bought.
11

11

at least 33 pounds (less than 17 pounds). Table 3 compares the behavior of individuals who buy cheap versus those who buy expensive seats. The average (annual) donation is larger for individuals buying expensive rather than cheap seats, although the dierence is not large. In both subsamples it remains true that donors attend more performances than non-donors. Among those individuals who buy cheap seats, the median number of performances increases from 2 (non-donors) to 4 (donors), for both regular and new productions. The same results hold for individuals purchasing expensive seats: the median goes from 2 (non-donors) to 3 or 4 (donors) for, respectively, regular and new performances. These dierences are statistically signicant.

Regression Analysis

This section studies the empirical relationship between donation and consumption of operas. Since donation and consumption are both endogenous variables, simultaneously determined by the rst order conditions, we estimate a system of two simultaneous equations.12 The rst equation describes the donation decision, while the second describes the consumption decision. The rst equation, obtained from the rst order condition of the maximization with respect to the amount donated, implies that the amount donated depends on the total attendance, income, the preference for new productions and the preference for fringe benets. We separate fringe benets into dress-rehearsals and special events (all other fringe benets) in the regressions. The second equation, obtained from the rst order condition of the maximization with respect to ticket purchases, implies that the total ticket expenditure depends, through the budget constraint, on the amount donated, the preference for new productions and income. First, we study the binomial decision to become a donor by estimating a multivariate Probit. Then we study the decision of how much to donate, by estimating a multivariate Tobit. Finally, we run a panel data regression with individually xed eects to control for possible unobservable variables.

5.1

The Binomial Donation Decision

Consider the binomial decision to become a donor Ii (di > 0) {0, 1}. The rst order conditions of

decides to become a donor if the dierence between his marginal utility as a donor and the cost of the and consumption decisions respectively. Since the donation decision is part of the expenditure decision, we consider the following system of two equations.
12

the model can be summarized in terms of an individual decision function i Xi0 . An individual

donation is positive, i.e. i > 0. Let {Xt , Zt } be the explanatory variables describing the donation

Estimating the system of simultaneous equations avoids the bias generated by endogenous explanatory variables.

12

 eq.1 : eq.2 :

Ii (di > 0) =

1 0

if i > 0 otherwise

with

i = Xi0 + ,i

T otal Expenditurei = Zi0 + e,i

Since the dependent variable of the rst equation, i.e. being a donor, is binomial, while that of the second equation, the total ticket expenditure, is continuous, we estimate the system using a In the Appendix we describe in detail the functional form of the bi-variate likelihood function and multivariate maximum likelihood Probit approach under the assumption that (,i , e,i ) N (0, 0 ).

the econometric methodology. Since we estimate the donation and consumption decisions as a simultaneous system of equations, we ensure that the system is identied by excluding at least as many exogenous variables as the number of included endogenous variables. We dene as donors those individuals who donated any positive amount. Explanatory Variables. We now describe the explanatory variables for this system of equations. These variables are (their meaning is explained below): the percentage of new productions attended with respect to the total number of production attended, the number of dress rehearsals attended, the number of special events consumed, income, the age of the individual, the distance of the donors residence from ENO, the distance to the local network of other ENO donors, the aggregate amount donated to ENO by other individuals living in the same neighborhood, and the average expenditure on ENO performances by other individuals living in the same neighborhood. The parameters are estimated using a multivariate Probit. The same variables will be used in the next section as well, where we look at the choice of donation amount. Hypothesis 1 implies that an individual is more likely to donate the higher is his preference for new productions, . We empirically identify by using the percentage of new productions with respect to total productions attended (hereafter, the percentage of new productions). The preference for fringe benets is measured by the attendance of dress rehearsals and special events. We distinguish between the two because dress rehearsals, the most common fringe benet, are available to all those who donated at least 25 pounds. higher classes. The two measures of distance capture dierent eects. The distance of the donors residence from ENO (ENO Distance) may aect the marginal cost of attending ENO performances or of taking advantage of ENO benets. This aects both donation and consumption decisions. The second measure, the distance to the local network of ENO donors (Network Distance), is computed as the average distance between the individual and the closest 500 donors (based on their postcode district). This variable captures a social status reason for donating (a private good motive). Certain special events, instead, are available only to donors of

13

Finally, we compute the aggregate amount donated to ENO and the average expenditure on ENO performances by other individuals living in the same neighborhood (Others Donations and Others Expenditure, respectively). The rst variable captures an individuals incentive to free-ride while the latter captures a networking eect. The free-riding eect occurs when one has less incentive to donate to a public good if he thinks others are already donating sucient amounts so as to cover the necessary xed costs. (We are assuming that it is easier to observe donations of those in close proximity). The networking eect occurs as follows: the more neighbors attend ENO operas (buy expensive tickets), the more one is likely to attend (buy more expensive tickets): in other words, an individual will try to behave as his neighbors. A positive correlation could, however, also be due to a wealth eect: the more auent a neighborhood is, the more likely individuals in that neighborhood have signicant disposable income. Unfortunately, we have no information on other individual consumption decisions apart from ENO tickets. The total income and expenditure are therefore only proxies, albeit important, of the disposable income net of other consumption goods. Instrumental Variables. Since the consumption of dress-rehearsals and special events (fringe benets) is potentially correlated with the residuals, we instrument these two variables using a Two Stage Heckit Estimator (Heckman (1979)). We use this approach since only donors have access to these fringe benets. Thus, using a simple linear projection over the entire sample to obtain the instruments would give biased estimators. In the rst stage, we use a Probit to estimate the inverse Mills ratio. In the second stage, the inverse Mills ratio is added to the right hand side variables in the instrumental variable equation of the fringe benets. A similar Instrumental Variable Probit methodology is used in an univariate framework by Nelson and Olson (1978), Kingma (1989), and Straub (2002). The standard errors of the estimators are corrected for the presence of imputed variables. We use a Newey-West (1987) estimator since the Nelson and Olson (1978) approach involve matrices of dimension (n 2n), with n being the sample size. Selecting an optimal set of instrumental variables is not simple. Ideally, one would like the

instrumental variables to be correlated with the regressors, but not with the observation errors. A natural choice would be the individual consumption of other forms of entertainment. Unfortunately, such information is not available at an individual level. Thus, we use as instrumental variables the lagged endogenous variables and six other strictly exogenous variables. These include income, ENO distance, network distance, the age of the individual, the aggregate amount donated to the ENO by other individuals living in the same neighborhood, and the average expenditure in ENO performances by other individuals living in the same neighborhood. These variables are orthogonal to the observation errors while being correlated with the right hand side consumption variables. Additional unobservable variables may still aect both total attendance and donation choice. 14

For instance, a preference shock inducing an individual to love opera more, may increase both his attendance and donation. This could aect the total attendance coecient estimate. To control for this and other similar issues, in the second part of the empirical analysis we run a panel data regression with an individual-specic xed (intercept) eect. Results Table 4 summarizes the joint estimation of the two equations for the entire sample and the subsamples of individuals buying cheap and expensive tickets.13 The consumption pattern has strong predictive power on the decision to become a donor. The pseudo-R2 of the probit regression for the entire sample is 19%. In the subsamples of individuals buying cheap and expensive tickets the R2 is 23% and 19%, respectively. Full Sample The rst equation results show that the probability of becoming a donor is positively and signicantly correlated with total attendance, income, age and the percentage of new productions. One expects that people who attend opera more often, and are older or wealthier, would be more likely to donate. More striking is the fact that, keeping constant these factors, the coecient for the percentage of new productions is signicantly positive and large even after controlling for total attendance. This result is consistent with Hypothesis 1 that individuals who have a preference for new productions are more likely to donate (the public good motive). Note that if an individuals motive to donate is exclusively joy-of-giving or private good motive, there is no reason to expect the probability of becoming a donor to be correlated with the preference for new productions. These results therefore suggest that the public good motive is important, providing evidence that individuals do feel pivotal and do not completely free-ride. The coecient for Others donations is negative as well. This is consistent with the free-riding incentive, though this coecient is not statistically signicant. We also nd support for the private good motive. Hypothesis 2 is evidenced by the positive and statistically signicant coecients for dress rehearsals and special events. The negative and statistically signicant coecient for the network distance demonstrates the social status motivation. The greater the distance to the network of donors, the lower the probability to donate. The coecient for Others Expenditure is positive and signicant, capturing either an imitation" eect, or simply an income eect. In the second equation, where the dependent variable is total ticket expenditure, the coecient for the gift amount is negative and signicant, suggesting that there is a substitution eect between attendance and donations. Donations reduce the budget available to buy tickets (Hypothesis 3).
An individual is said to buy cheap (expensive) tickets if the average price per seat paid is in the bottom (top) three deciles of the distribution of the price per seat.
13

15

The coecient for the percentage of new productions is positive and signicant, suggesting that individuals with a preference for new productions tend to buy more expensive tickets or to attend more often. The coecient for the distance from ENO is negative and signicant: the further away one is from ENO, the less he will attend operas (and thus the lower the expenditure).

Subsamples We subsequently stratify the sample and nd that the dierences between cheap and expensive ticket buyers are consistent with the hypotheses stated in Section 2. The coecients for total attendance and percentage of attendance to new productions in the rst equation are signicantly higher for individuals buying expensive seats (supporting Hypothesis 4). The coecient for dress rehearsals is higher for individuals buying cheap seats, while that for special events is higher for individuals buying expensive seats. These results suggests that individuals buying expensive seats are more likely to be motivated by the public good reason, while individuals buying cheap seats by the private good reason. Moreover, the coecient for the income variable in the rst equation is positive and signicant for individuals buying cheap seats while it is not signicant for individuals buying expensive seats. In other words, the budget constraint is binding only for those buying cheap seats. This agrees with the fact that the coecient for attendance in the second equation (the substitution eect) is negative and signicant only for donors buying cheap seats. Since individuals buying expensive seats are less budget constrained, the substitution eect of a donation (less disposable income to purchase tickets) is less relevant and the complementarity eect (improving the quality of performances attended) is predominant. Moreover, the free-riding incentive is clearly demonstrated for lower income individuals by the coecient for Others donations. This coecient is both negative and signicant. The larger coecient for special events for those buying expensive seats is consistent with the fact that certain special events are available only to those with higher donations (who are more likely to be the individuals buying expensive seats). The absolute value of the slope coecient for the network distance is larger for individuals buying expensive seats. This supports both the hypothesis that donations are a means of nancing private benets along with the conjecture that dierent income levels focus on dierent private benets. Low income individuals are more likely to care about dress rehearsals. High income individuals, however, care about networking and social status. Other dierences between individuals buying cheap and expensive seats cannot be easily explained. For example, the coecient for age in the Cheap Seats subsample is negative and signicant. In summary, the Probit analysis suggests that a large subset of individuals do feel pivotal for the production of the public good. The relative importance of this motivation with respect to the consumption of fringe benets depends on the income level. Individuals with high income (who buy 16

expensive seats) are more likely to donate because they want to support the production of new operas (i.e. public good motive); individuals with low income (who buy cheap seats) may also feel pivotal but the net benet of their contribution is lower. They donate mainly to attend dress rehearsals (private good motive). For individuals with high income the private good motive is present mainly in the form of social status."

5.2

Donation Amount

This section estimates the decision for the amount to donate, correcting for the potential bias of sample self-selection due to censoring. The estimators are obtained by maximizing the log-likelihood of a system of two equations. The two dependent variables are the amount donated (Gift amount) and the total expenditure (attendance multiplied by the price paid for each performance). The explanatory variables are the same as for the Probit regressions with the exception of the average amount donated and spent by other individuals in the same postcode district (since aggregation would lead to trivial results.) Let (Xi , Zi ) be the set of explanatory variables, and let us dene di to be the dollar amount donated, which can be either zero (non-donors) or positive (donors). Let d be the latent donation i decision, so that Ii = 1 if d > 0 i ( eq.1 : eq.2 :

d = Xi0 + di i

with di = d I(d > 0) i i

T otal Expenditurei = Zi0 + e,i

Since the dollar amount donated, di , and the fringe benets are observable only if d > 0 the i system of equations is censored. Thus, we estimate the system simultaneously using a Tobit FullInformation Maximum Likelihood approach (Tobin (1958)), under the maintained assumption that (d , e ) N (0, 0 ). The Full Information feature of the approach gives asymptotically ecient estimators and takes

into account the potential correlation between the errors. As in the case of the Probit regressions, we use instrumental variables for the attendance of dress rehearsals and special events, including the lagged endogenous variables and six other strictly exogenous variables. The Appendix describes the construction of the functional form of the bi-variate likelihood function and the econometric methodology. We consider two censoring cases. First, we classify as donors all individuals donating a strictly positive amount (Table 5a). Second, we consider those donors who donated more than 25 pounds (Table 5b). These are the only ones who have access to dress rehearsals and special events. In both cases we ask whether, conditional on having decided to be a donor, the donation amount is positively correlated with the explanatory variables.

17

Table 5a and 5b summarize regressions results, using both censoring classications. In both cases, total attendance, age and income have a positive and statistically signicant eect on the amount donated. The coecient for the percentage of attendance to new productions is positive and signicant. This shows that preferences for new productions (public good motive) are correlated not only with the probability of becoming a donor, but also with the amount donated. The dress rehearsals coecient is positive and signicant in the rst case, but not in the second in which individuals donate more than 25 pounds. This is expected, since in order to attend dress rehearsals it is sucient to donate 25 pounds. The special events coecient is positive and signicant in all cases, consistent with the fact that access to some events requires membership in a higher donor class. Finally, the distance variables show the same characteristics as in the Probit model. Consider now cheap and expensive ticket buyers. In the rst equation, the total attendance coecient is signicantly larger for those who purchased expensive tickets. For these individuals, the coecient for the percentage of attendance to new productions is positive and signicant, while the special event coecient is lower than for buyers of cheap tickets. Finally, the income coecient is positive and signicant only for cheap seats. In the second regression, the coecient for the amount donated is negative and signicant only for individuals buying cheap seats. The coecient for the percentage of attendance to new productions is positive and signicant for both subsamples. These results conrm the interpretation suggested by the Probit analysis. The public good motive is more important for individuals buying expensive seats while the private good motive is statistically signicant and plays an important role for both individual types. For those buying cheap seats it is in the form of access to dress rehearsals; for individuals buying expensive seats it is in the form of social status.

5.3

Panel Data Aggregation

Individuals have dierent preferences for operas. As such, individual taste may aect both the decision to donate and the correlation between the amount donated and the consumption of private and public goods produced by ENO. To control for this eect, we run a panel data regression with an individual xed (intercept) eect. The system of equations can be written as ( eq.1 : d = 0 + 1i + Xi0 + di with di = d I(d > 0) i i i eq.2 : T otal Expenditurei = 0 + 1i + Zi0 + e,i We assume that the joint distribution of the residuals is multinomial Normal and jointly estimate the system of two equations using a Tobit approach. We deal with the potential endogeneity of dress rehearsals and special events consumption using the same instrumental variables technique discussed in the previous section. The results are summarized in Table 6. We nd the following:

18

First, after controlling for the individual xed-eect, not only is the slope coecient of the donation equation with respect to the public good motive, i.e. in the overall sample it is actually larger. Second, also the private good motive remains statistically signicant. When the private benets are measured in terms of dress rehearsals and special events consumption, the slope coecient is larger in the Cheap Seats subsample. When it is measured in terms of distance to a network of donors, it is more important for the Expensive Seats subsample. The slope coecient of the other exogenous variables are similar to the cross-sectional Tobit regressions.
New P rodi,t T otal P rodi,t ,

signicantly positive, but

5.4

Robustness Checks

In this section we explore the extent to which the previous results are robust to alternative specications and dierent econometric methods. Due to spatial limitation we only summarize the results. The specic tables are available upon request. First, the previous results are based on a Full Information ML approach, which gives asymptotically ecient estimators. Previous literature has shown that in nite samples the results can be sensitive to the estimate of the variance-covariance matrix. We check the robustness of the results by computing Limited Information 2SLS estimators with instrumental variables, which, although not asymptotically ecient, is known to be robust in small samples. We nd that the point estimates are not statistically dierent from the original results and the standard deviations are marginally higher. Second, we check the robustness of the results using as explanatory variables the total dollar expenditure on performances rather than the total number of performances attended. The results are similar to those reported in Table 5. Third, we check whether the assumption of normality of the residuals used to construct the generalized Tobit regression is responsible for some of those results. We consider two alternative distributional assumptions for the censored model: Weibull and generalized Logistic. These two distributions may account for some skewness and kurtosis in the residuals. We nd that the coecient estimates are very similar, independently of the choice of distribution. The only exception is the income coecient which is on average larger in the Weibull distribution. Fourth, in the model of Section 2 an individual chooses whether to donate, taking into account his future attendance. Since there might be a delay between the donation decision and the actual use of these funds to nance new productions, we run regressions in which the attendance is measured with a delay. For the one year lag, the pattern is very similar to the original. For a two years lag, the coecient for total attendance is no longer statistically signicant while the coecient of the percentage of attendance to new productions is still positive and signicant.

19

Fifth, we notice that the total number of new productions, dress rehearsals and special events oered has increased over the last ten years. Thus, we check whether the results could be due to the existence of a deterministic time trend by controlling for two eects: (a) a time dummies and (b) the cumulative number of performances attended in the previous years up to the donation moment.14 The second control variable is introduced mainly for interpretation reasons, since individuals who have seen old productions and wants to see new ones do not contradict the public good motive for donating. The results are summarized in Table 7. We nd that even controlling for the cumulative performance and time eect, the previous interpretation of the results is conrmed.

Excess Donations

So far we have considered the amount donated (and the benets attached to it) as a continuous variable. However, ENO (and in general most charities) aggregates donors in dierent categories. A category of donors (e.g. Friends or Bronze Friends in Table 1) is characterized by a minimum and maximum level of donation: all donations within that interval belongs to the same category and obtains access to the same fringe benets. For instance, donors names are publicized only as members of a given category. The private good motive can justify why a donor chooses to be in a certain category, but not why he would donate in excess of the minimum to be in that specic category. In this Section, we study such donations.15 The advantage of this focus is that it allows us to abstract from all private good motives including the social status, and to concentrate more directly on the public and joy-of-giving motives.16 These two motives yield dierent predictions. The public good motive predicts that the excess donation is positively correlated with consumption of new performances, while joy-of-giving predicts no correlation between excess donations and percentage of attendance to new performances. Thus, we explore these two predictions by regressing excess donations on the attendance to new productions, controlling for total attendance and other characteristics to check for the presence of the public good motive. We proceed as follows. We rst divide donors within each class of donation, say 25 to 50 pounds, into four equally spaced groups: 25 to 27.50 pounds, 27.50 to 35.00, 35.00 to 42.50 and 42.50 to 49.99. Each of these subgroups has the same right to attend special events. In Figure 4 we document for each subgroup what percentage of individuals attends dress rehearsals. We nd very clearly that the individuals who donate just the threshold of a given donation class are the ones who attend more dress rehearsals. The relationship is less strong for higher donation classes. What does motivate donation in excess to the minimum? In Table 8 we present regression results
We refer to this variable in Table 6 as cumulative performance. See Harbaugh (1998) for a rst use of this approach. 16 In the previous analysis, we have controlled for the private good motive by using as an explanatory variable the actual consumption of dress rehearsals and other special events.
15 14

20

of the excess donation over the consumption choice. The excess donation is dened as the dierence between the actual amount donated and the minimum level to be in a donation class. For each class we regress the excess donation onto the attendance to special events, dress-rehearsals, income and the preference for new performances. We nd that the coecient for the percentage of attendance to new productions is positive and signicant. This supports the public good motive.17 Moreover, we nd that excess donations are positively correlated with the consumption of special events and new performances. This is surprising, although it is present only for the lowest category. Conversely and consistent with expectations, the correlation with the attendance to dress rehearsals is negative and signicant: donating more than the minimum does not give access to more dress rehearsals.

The Dynamics of Donations

In this Section we consider a second way to take advantage of the time-series dimension of our data set. Earlier, we considered a panel data regression with xed-eect to control for individually specic taste characteristics. Here, we focus on frequency of donation: i.e. people who donate only once versus those who continue donating over the years. We aim to isolate two aspects. First, we can look at the change of behavior when an individual starts or stops donating and see whether this either reinforces or weakens the public and private good motives. For instance, it is reasonable to expect that the correlation between the probability of becoming a donor and the preference for new productions is stronger for repeated (rather than occasional) donors, if individuals are motivated by the public good reason. In Table 9 we present summary statistics about the behavior of donors in four dierent periods: the year before they donate for the rst time, the rst year in which they donate, the second consecutive donation year and the rst year in which they stop donating. We nd that the average price per seat (for both new and regular productions) decreases when an individual starts donating and increases when he stops donating. The result holds for both new and regular productions and is consistent with a substitution eect between consumption and donations. The average attendance to new productions increases in the year following the donation, while the average attendance of regular productions decreases. The proportion of new performances atnew seats tended ( not new seats ) is higher when the individual starts donating and is even higher for those who

continue to donate. (However, it does not decrease when the individual stops donating). This is additional supporting evidence for the existence of a public good motive and the fact that a substantial percentage of individuals do feel pivotal.
17 The preference for new productions loses signicance in the highest class of donation. However, this result could be due to the low number of data points in this donation class.

21

We also nd that the attendance to dress rehearsals (special events) is three times (twice) higher for continuing donors. This suggests that repeated donors are also strongly motivated by the access to fringe benets. In Table 10 we look at how the consumption choice changes when an individual starts or stops donating. In particular, we look at the change in the average seat price, attendance to new productions as a percentage of total attendance, total attendance and total attendance including dress rehearsals. Panel A looks at individuals behavior in the year in which they start donating and Panel B in the year in which they stop donating. In panel A the dummy takes value 1 if the individual, who was not a donor in year t 1, becomes a donor in year t. In panel B the dummy takes value 1 if the individual, who was a donor in year t 1, stops donating in year t. When the dependent

variable is the change in the average price per seat, the dummy is negative and signicant in Panel A and positive and signicant in panel B. This suggests that there is a substitution eect between consumption and donations: the individual, having donated money, is more budget constrained, and therefore reduces his expenditure in buying tickets. In the regression in which the dependent variable is the percentage of new performances attended, the dummy is positive and signicant in Panel A and negative and signicant in panel B. This is additional supporting evidence that individuals feel pivotal and donate to support new productions.

Conclusions

We have studied three of the main reasons that the literature has identied to explain the economics of donations: the public good motivean individual donates because he feels pivotal for the production of a public goodthe private good motivean individual donates to gain access to fringe benets and the joy of givingan individual may derive utility from the very act of donating. These three motives lead to three mutually exclusive patterns of donation and consumption. Thus, to explore these motives we build a dataset that merges information on both donations and consumption from the English National Opera. We nd that even after controlling for the incentive to donate provided by the fringe benets (such as access to dress rehearsals and other special events that ENO oers to donors), donations are consistent with the hypotheses that individuals feel pivotal and contribute for the production of a public good (e.g. new productions). The joy-of-giving is most denitely an important motive, as shown in experimental evidence, but it is particularly important to document the presence of the public good motive since with a large number of potential donors it has been argued that people may have the incentive to completely free-ride. We explore the relative importance of the public good motive for dierent subsets of individuals. We nd that for individuals buying cheap seats attendance and donations are more likely to be substitutes (since a donation reduces the income available to buy tickets) while for individuals buying expensive seats the substitution eect is limited and donations and attendance are more likely to be 22

complements (since donations increase the quality of the good consumed). As a result, individuals buying cheap seats are more likely to donate only to have access to fringe benets, while individuals buying expensive seats are more likely to respond to the public good motive. Finally, intertemporal evidence shows that individuals who start donate show an increase in their preference for new productions (the public good) and in the substitution eect. These results show that some individuals donate in order to make sure that a public good is provided. Our research may be useful for fund-raising eorts in the arts, indicating which people to target and how, and for public policy purposes. For instance, the existence of a signicant substitution eect between donations and expenditure suggests that a reduction in public grants, although partially oset by an increase in private donations, would indeed reduce the revenues from ticket sales and thus the funding available for new productions.

23

Appendix (Econometric Methods)

Consider a set of observed data {( i , di ), Ii , (Zi , wi )}, i = 1, ...N. Let i be the vector of consumption decisions, di be the amount donated, and let (Zi , wi ) be a set of explanatory variables. Ii is a binomial indicator function for the decision of becoming a donor, i.e. Ii = 1 if di > 0. Since donations cannot be negative and the fringe benets can only be consumed by donors, the reduced form representation of the model is censored. Let d be the latent variable aecting the decision to become a donor. i d i di = =
0 wi + di

d I(d > 0) i i

Let i = [ 1i , 2i ] be the consumption decision, with 1i being the attendance to new and repertoire productions and 2i being the consumption of fringe benets i = Z 0 1 + i Let us consider the estimation of the vector of parameters . One can immediately notice that it would be inappropriate to estimate this model on the entire sample using the observed information di since, for the observation which are censored, one cannot consider the censoring rule as a true realization of the underlying relationship. The probability of observing censored observation is 0 P r (di = 0|wi ) = 1 (wi ) Thus P r (di = 0|wi ) E (di |wi , di > 0) 0 0 wi wi 0 wi + = 0 0 0 wi wi wi / . Due to The additional term in the square brackets is known as the inverse Mills ratio, censoring, the expected value of the amount donated is aected by the probability that an individual does not donate at all. If the explanatory variables were exogenous, the parameter vector can be estimated using Maximum Likelihood, with the likelihood function given by 0 Y 0 Y wi 1 di wi L(di |, ) = 1 d =0 d >0
i i

E(di |wi )

In our case, the set of explanatory variables wi includes i , the consumption decision. Since the decision to donate, or how much to donate equation (??), is determined jointly with the decision on the expenditure amountequation (??), we face a classical endogenous explanatory variables problem. Two forces aect the relationship between the two variables. Given the preference parameters, the budget constraint makes the correlation between donation and expenditure in new productions negative; given the budget constraint, a preference for new production makes the correlation positive. This problem is very common in a variety of dierent public nance problems. This issue can be tackled using either Full Information or Instrumental Variables methods. Let us consider the simultaneous estimation of the system of rst order conditions involving both the donation decision and the consumption decision [di , i ]. Let us assume that the vector of residuals = [d , ] is conditionally Multi-Normal distributed with density and cumulative function N (0, 0 ) 0 i Let be the orthogonalized vector of residuals, so that i = [ 1i , 2i ]0 = 1 , then 0 i Z " # 0 Z wi 0 P r di = 0, i = Z = 1 (, 2i )d

Thus, in the case of endogenous explanatory variables, the (multivariate) Likelihood function should be re-written as " # Z w0 i Y Y h 0 1 ( 1i , 2i ) 1 (, 2i )d L(di , 1i |, , ) =
di =0 di >0

24

Consistent and asymptotically ecient estimators of the parameters and 1 can be obtained by FIML. 1 8 Clearly, since the donation amount is censored at zero, given a set of consistent ML estimators of the model, the parameters measures the marginal eect on the latent variable, not on the observable donation variable E(d |wi ) i wi E(di |wi ) wi = = "Z

0 wi

( 1 , 2 )d 1 d 2

For simplicity, in all Tables we present the results in terms of the marginal eect, correcting for the censoring eect. The previous generalized Tobit approach corrects both for the censoring of the observations that the decision to donate entails and for the endogeneity of some of the right hand side variables. An alternative approach that delivers consistent estimators in the presence of endogenous explanatory variables is based on Instrumental Variables techniques. This approach is known to be more robust than Full Information methods in small samples, however it is not asymptotically eciency. We our empirical analysis we use both methods to discuss the robustness of the results.
18 Test statistics of null hypothesis of the type H0 : = R can be constructed using the property that, for the joint model, under the null hypothesis the score of the likelihood function is a martingale in dierence over time and independent across cross-sectional observations, so that a LM Chi-square test is given by: 0 lnL(R ) 1 lnL( R ) J =N WN R R

with WT being a consistent estimator of the variance-covariance matrix of the score, such as WT = usual, the standard deviations of the parameters is given by " #" #1 #1 " X lnLi,t X 2 lnLi,t X lnLi,t = . 2 2 i,t i,t i,t

X
i,t

2 lnLi,t . 2

As

25

References
[1] Andreoni J., 1988, Privately Provided Public-Goods in Large Economy- the Limits of Altruism, The Journal of Public Economics, vol.83, pp. 57-73. [2] Andreoni J., 1989, Giving with Impure Altruism: Applications to Charity and Ricardian Equivalence, The Journal of Political Economy, vol.97, pp. 1447-58. [3] Andreoni J., 1990, Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving, The Economic Journal, vol.100, pp. 464-477. [4] Andreoni J., 1995, Cooperation in Public-Goods Experiments: Kindness or Confusion?, The American Economic Review, vol.85, pp. 891-904. [5] Andreoni J., 1999, Toward a Theory of Charitable Fund-Raising, The Journal of Political Economy, vol.106, pp. 1186-213. [6] Andreoni J. and R. Petrie, 2003, Public Goods Experiments Without Condentiality: A Glimpse into FundRaising, mimeo, University of Wisconsin. [7] Bagnoli M., and B. Lipman, 1989, Provision of Public Goods: Fully Implementing the Core through Private Contributions, Review of Economic Studies, 56, pp. 583-601. [8] Becker G., 1974, A Theory of Social Interactions, The Journal of Political Economy, vol.82, pp. 1063-93. [9] Bliss, C. and Nalebu, B., 1984, Dragon-slaying and ballroom dancing: the private supply of a public good, Journal of Public Economics, vol.25, n.1, pp. 1-12. [10] Clotfelter C.T., 1985, Federal Tax Policy and Charitable Giving, The University of Chicago Press, Chicago. [11] Cornelli F., 1996, Optimal selling procedures with xed costs, The Journal of Economic Theory, vol.71, n.1, pp. 1-30. [12] Frank, J. and Wrigley, P., 2001, A Night at the Opera. Subsidies, Prices and Repertoire at Londons Opera Houses, World Economics, vol.2, no.3, pp. 167-176. [13] Hansmann H., 1981, Nonprot enterprise in the Performing Arts, The Bell Journal of Economics, vol.6, n.1, pp. 341-361. [14] Harbaugh W., 1998a, What Do Donations Buy?, The Journal of Public Economics, February, 67(2), pp. 269-84. [15] Harbaugh W., 1998b, The Prestige Motive for Making Charitable Transfers, American Economic Review, Papers and Proceedings, May, 88(2), pp. 277-82. [16] Harbaugh W., and K. Krause, 2000, Childrens Altruism in Public Good and Dictator Experiments, Economic Enquiry, January, 38 (10), pp. 269-84. [17] Heckman, James, 1979, Sample Selection Bias as a Specication Error, Econometrica 47, pp. 153-161. [18] Khanna, J. and Sandler, T., 2000, Partners in Giving: The Crowding-in Eects of U.K. Government Grants, European Economic Review, vol.44, pp. 1543-1556. [19] Kingma, B.R., 1989, An Accurate Measurement of the Crowd-Out Eect, Income Eect, and Price Eect for Charitable Contributions The Journal of Political Economy, vol.97, n.5, pp.1197-1207. [20] Kingma, B.R. and R. McClelland, 1995, Public Radio Stations Are Really, Really Not Public Goods: Charitable Contributions and Impure Altruism, Annals of Public and Cooperative Economics, Vol. 66, pp.65-76. [21] List J.A. and D. Lucking-Reiley, 2002, The Eects of Seed Money and Refunds on Charitable Giving: Experimental Evidence from a University Capital Campaign, Journal of Political Economicy, vol.110, n.1, pp. 215-233. [22] Nelson, F. and L. Olson, 1978, Specication and Estimation of a Simultaneous Equation Model with Limited Dependent Variables, International Economic Review, Vol. 19, No. 13, pp. 695-709.

26

[23] Pagan A. and F. Vella, 1989, Diagnostic Tests for Models Based on Individual Data: A Survey, Journal of Applied Econometrics, S29-S59. [24] Palfrey, A. and Rosenthal, R., 1984, Participation and the provision of discrete public good: a strategic analysis, Journal of Public Economics, vol.24, n.2, pp. 171-193. [25] Posnett, J. and Sandler, T., 1989, Demand for Charity Donations in Private Non-prot Markets: The Case of the U.K., Journal of Public Economics, vol.40, n.2, pp. 187-200. [26] Ribar, D.C. and M. O. Wilhelm, 2002, Altruistic and Joy-of-Giving Motivations in Charitable Behavior, Journal of Political Economy, vol. 110, n.2, pp. 425-457. [27] Straub, J., 2002, Fundraising and Crowd-Out of Charitable Contributions: New Evidence from Contribution to Public Radio mimeo, Texas A&M University. [28] Tobin, James, 1958, Estimation of Relationships for Limited Dependent Variables, Econometrica 26, pp. 24-36. [29] Weisbrod, B.A. and Dominguez, N.D., 1986, Demand for Collective Goods in Private Nonprot Market: Can Fundraising Expenditures Help Overcome Free-riding Behavior?, Journal of Public Economics, vol.30, n.1, pp. 83-95.

27

Figure 1. Become a Friend and Support New Productions: part of a leaet describing the advantages of becoming a donor of the English National Opera.

28

Distribution of Donations
9000 8000

Number of Donations

7000 6000 5000 4000 3000 2000 1000 0 10 25 40 55 70 85 100 115 130 145 160 175 190 205 220 235 250 350 >500

Amount Donated
Figure 2. Distribution of the amount donated (x-axis). The vertical axis shows the absolute number of donations of a given amount.

29

Distribution of New Productions for Non-Donors and Donors

60 50 40
Frequency

30 20 10 0

Non Donors Donors

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Number of Tickets

Figure 3. Histogram of the distribution of the number of tickets for New Productions purchased by Non-Donors (left bar) and Donors (right bar).

30

Dress Rehearsals
0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00
10 010 7. 5 13 015 2. 5 17 518 2. 5 20 522 7. 5 25 027 5 35 042 5 50 055 0 70 085 0 10 00 -1 15 0 16 00 -2 05 0 25 00 -3 00 0
Level of Donation

25 -2 7. 5

35 -4 2. 5

50 -5 5

Figure 4. Distribution of attendance to Dress Rehearsals as a function of the dierent level of donation. Each donation class is subdivided into four groups: (a) the group that donated the minimum amount to be in that class, (b) two groups of individuals who donated an amount that falls between two consecutive thresholds, and (c) the group that donated the largest amount in that class. Each of these groups has the same rights to attend special performances. For each group, we represent the number of people (as a percentage of the total number of individuals in that donation class) who attended dress rehearsals.

70 -8 5

31

Table 1 The ENOs Gift Programs

This table describes the characteristics of the fringe benets that are oered to dierent classes of donors up to a donation amount of 250 pounds

Program Friend:

Level of Gift 25-49

Fringe Benets Advance information about performances Priority booking for ENO performances Priority booking for variety of Friends Events, including talks Priority booking for dress rehearsals A subscription to ENOs Coliseum magazine, published three times a year A personalised membership card All of the above plus: An invitation to a special pre-rehearsal talk All of the above plus: An invitation to an annual reception to meet Company members and performers All of the above plus: An exclusive opportunity to attend a music rehearsal

Bronze Friend: Silver Friend: Gold Friend:

50-99 100-174 175-249

32

Table 2 General Description of the Data Set

This table presents summary statistics of the data set. Panel A focuses on the average annual expenditure of each individual during one opera season; panel B focuses on the number of tickets bought. To avoid the eect of individuals acting as agents, we restrict the analysis to individuals buying at most 6 tickets for the same event. The unit of measure of the average annual expenditure is UK pound sterlings.

Event Annual Gift Amount:

# Obs

Mean 28.21

Median 20

Std. Dev. 41

Panel A: Average Annual Expenditure Donors: Total Expenditure Regular Prod. New Prod. Non Donors: Total Expenditure Regular Prod. New Prod.

36,098

227 113 114

150 72 75

240 143 143

284,451

83 51.20 31.77

56 36 9

98 67 61

Panel B: Number of Tickets Bought Donors: Total Attendance 36,098 8.45 6 Regular Prod. 4.28 2 New Prod. 4.17 2 Dress Rehearsal 0.58 0 Non Donors: Total Attendance Regular Prod. New Prod.

8.83 5.24 4.97 2.44

284,451

3.58 2.18 1.39

2 2 0

4.34 2.83 2.50

Panel C: Average Price Per Seat Donors: Total Attendance 36,098 29.39 28.6 Regular Prod. 28.73 27.64 New Prod. 29.10 28 Non Donors: Total Attendance Regular Prod. New Prod.

12.44 12.26 12.51

284,451

25.28 25.98 25.46

25 25 25

13.63 13.12 13.25

Table 3 Attendance for cheap and expensive tickets

This table presents summary statistics of the cross-sectional characteristics of the average attendance during an opera season and of the gift amounts. The dataset is stratied in two subsamples. The cheap ticket subsample includes all those individuals spending on average an amount which is in the bottom three deciles of the distribution of prices per seat, i.e. less than UKP 17. The expensive ticket subsample includes all those individuals spending on average an amount which is in the top three deciles of the distribution of prices per seat, i.e. more than UKP 33. To avoid the eect of individuals acting as agents, we restrict the analysis to individuals buying at most 6 tickets for the same event. The unit of measure of the price per seat is UK pound sterlings.

Event Annual Gift Amount:

# Obs 17,102

Mean 33.27

Median 20

Std. Dev 47.33

Panel A: Expensive Tickets Donors: Total Attendance Regular Prod. New Prod. Dress Rehearsal Non Donors: Total Attendance Regular Prod. New Prod.

17,102

8.20 4.08 4.21 0.40 3.56 2.14 1.41

6 3 4 0 2 2 2

8.23 4.84 4.81 1.90 3.87 2.52 2.39

87,236

Panel B: Cheap Tickets Annual Gift Amount: Donors: Total Attendance Regular Prod. New Prod. Dress Rehearsal Non Donors: Total Attendance Regular Prod. New Prod. 8,426 25.82 19 34.50

8,426

11.73 6.04 5.69 0.85

8 4 4 0

11.46 6.74 6.23 3.06

82,928

4.26 2.54 1.73

2 2 2

5.54 3.47 3.02

34

Table 4 Multivariate IV Probit

This table reports the estimation results for the system of rst order conditions. The estimation is based on the log-Likelihood of the joint system of two equations 0 eq.1 : P rob(Gif ti > 0) = N (wi ) 0 eq.2 : T otal Expenditurei = Zi # # "Z 0 " Z wi 0 N i 0 0 X i Zi i Zi ; )dz + (1 Ii )log 1 ; )dz log L = Ii log N2 (z, N2 (z, i=1

describes the binary decision Ii {0, 1} to become a donor, with Gif ti > 0, while <+ is the Total Expenditure. N ew Total Attend i,t is the total number of performances attended. T otal P rod is the logarithm of one plus the percentage of New P rod Productions attended over Total Attendance. Dress Re are Dress Rehearsals; Spec are the special events attended; ENO Distance is the distance between the household and the theater; Network Distance is the distance between the household and the closest 500 donors; Age is the age of the individual; Others Donation i,t is the total amount donated to the ENO by other individuals living in the same postcode neighborhood; Others Expenditure i,t is the per capita purchase of tickets by other individuals living in the same postcode neighborhood. We instrument the consumption of dress-rehearsals and special events to correct for the potential endogeneity of the explanatory variables. We use their lagged values, and the following exogenous variables: income, age, ENO distance, network distance, othersdonation and others expenditure. The sample excludes the donations in the top 2% decile of the distribution and individuals that purchased more than 6 tickets for the same event. The subset of cheap and expensive tickets are respectively the bottom and top three deciles of the distributions of individuals in terms of the average price of the tickets purchased. Huber-White robust standard errors are reported under the estimated coecients. A single (double) star stands for statistical signicance at the 5% (1%) condence level. Overall Sample z }| { Being a Donor Total Expend 2.34
0.02 0.01 0.45

Const Total Attend i,t Gift Amount i,t

N ew P rodi,t T otal P rodi,t

8.08

Cheap Seats z }| { Being a Donor Total Expend 2.45

0.05 0.01

11.85
1.67

Expensive Seats z }| { Being a Donor Total Expend 1.92

0.04 0.76

6.43

0.05

0.05

0.001

0.06

0.07
0.03 0.01

0.11
0.05 0.02

0.04
0.03

0.29 0.21 0.20 0.01

0.31

1.12

0.18 0.20 0.18 0.01

0.65
0.55

0.02

0.35 0.16 0.23

0.48

0.99

Dress Re i,t Spec i,t Income i,t ENO Distance i,t Network Distance i,t Age i,t Others Donation i,t Others Expend i,t R2

0.04

0.02

0.01

0.01

0.02

0.02

0.001

0.02

0.03

0.002

0.07
0.06

0.001
0.01

0.02

0.07

0.06
0.02 0.003

0.09
0.03

0.04
0.03

0.01 0.01

0.007
0.003 0.91

0.013
0.04 0.97

0.004

2.37

0.005

0.07 0.15
0.17

2.71

0.006

0.04

0.814

1.81

0.21
0.20 0.12

0.56
0.45 0.11

0.32 5%

0.37 7%

0.13

0.29 5%

19%

23%

19%

Table 5a (Donations >0) Multivariate IV Tobit

This table reports the estimates for the system of two equations using Full Information Tobit. We use Instrumental Variables to correct for the potential endogeneity of Dress Rehearsals and Special Events. eq.1 : Gif t = 0 + g,i Gif ti = Gif t Ii (Gif t > 0) i i i i eq.2 : Expendi = Z 0 + e,i
i

describes the binary decision Ii,t {0, 1} to become a donor at time t, with Gifti,t > 0. The two left hand side variables in the system are the Gift Amount and the Total Expenditure. Total Attend i,t is the total number of performances N ew attended. T otal P rod is the logarithm of one plus the percentage of New Productions attended over Total Attendance. P rod Dress Re are Dress Rehearsals; Spec are the special events attended; ENO Distance is the distance between the household and the theater; Network Distance is the distance between the household and the closest 500 donors; Age is the age of the individual. Since dress rehearsals can be attended only if one donates more than UKP 25, the estimation includes a projection of the dress-rehearsals on a set of instrumental variables. We instrument the consumption of dress-rehearsals and special events to correct for the potential endogeneity of the consumption of special events and dress-rehearsals. We use their lagged values, and the following exogenous variables: income, age, ENO distance, network distance, othersdonation and others expenditure. The sample excludes the donations which are, in terms of size, in the top 2% decile. We do not considers those individuals that purchased more than 6 tickets for the same event. Standard errors are reported in parenthesis. A single (double) star stands for statistical signicance at the 5% (1%) condence level. Overall Sample z }| { Gift Amount Total Expend
Ii =1 if di >0

Cheap Seats z }| { Gift Amount Total Expend

Ii =1 if di >0

Expensive Seats z }| { Gift Amount Total Expend

Ii =1 if di >0 1.97

Const Total Attend i,t Gift Amount i,t

N ew P rodi,t T otal P rodi,t

1.16

5.14

0.26

6.12

2.70
2.13 0.03

0.71

9.29

10.40 2.25

0.35

4.49

0.02

1.62

1.24

0.04

0.08
0.04 0.59

0.14
0.05

0.02
0.02

1.20 0.72 2.86 0.28

0.13

0.64

0.64
1.17 0.13

0.39

1.04

1.00

1.85 0.68 3.46 0.07

0.07

0.18

0.43

Dress Re i,t Spec i,t Income i,t ENO Distance i,t Network Distance i,t Age i,t R2

0.09

0.80 2.45 0.28

0.20

0.19

0.24

0.34

0.04

0.01

0.02

0.08

0.02
0.02

0.01

0.06 0.04

0.06
0.03

0.08
0.03

0.03

0.50
0.21 0.09

0.35
0.14 0.86

0.61
0.25 0.96

0.77 0.07

2.35

0.10

0.64

2.85

0.31

1.19

0.76

1.76

0.06

0.07

0.05

0.07

0.07

Table 5b (Donations > 25) Multivariate IV Tobit

This table reports the estimates for the system of two equations using Full Information Tobit. We use Instrumental Variables to correct for the potential endogeneity of Dress Rehearsals and Special Events. eq.1 : Gif t = 0 + g,i Gif ti = Gif t Ii (Gift > 25) i i i i eq.2 : Expendi = Z 0 + e,i
i

describes the binary decision Ii,t {0, 1} to become a donor at time t, with Gif ti,t > 25. The two left hand side variables in the system are the Gift Amount and the Total Expenditure. Fixed Eect i is an individual-specic xed eect N ew parameter. Total Attend i,t is the total number of performances attended. T otal P rod is the logarithm of one plus the P rod percentage of New Productions attended over Total Attendance. Dress Re are Dress Rehearsals; Spec are the special events attended; ENO Distance is the distance between the household and the theater; Network Distance is the distance between the household and the closest 500 donors; Age is the age of the individual. Since dress rehearsals can be attended only if one donates more than UKP 25, the estimation includes a projection of the dress-rehearsals on a set of instrumental variables. We instrument the consumption of dress-rehearsals and special events to correct for the potential endogeneity of the consumption of special events and dress-rehearsals. We use their lagged values, and the following exogenous variables: income, age, ENO distance, network distance, othersdonation and others expenditure. The sample excludes the donations which are, in terms of size, in the top 2% decile. We do not considers those individuals that purchased more than 6 tickets for the same event. Standard errors are reported in parenthesis. A single (double) star stands for statistical signicance at the 5% (1%) condence level. Overall Sample z }| { Gift Amount Total Expend
Ii =1 if di >25

Cheap Seats z }| { Gift Amount Total Expend

Ii =1 if di >25 6.48

Expensive Seats z }| { Gift Amount Total Expend

Ii =1 if di >25 5.01

Const Total Attend i,t Gift Amount i,t

N ew P rodi,t T otal P rodi,t

3.41

36.96 1.08

2.68

5.37

22.81 0.98

1.72

13.77

50.12 1.45

0.79

6.25

0.06

0.08

0.09

0.05
0.03 1.83

0.06
0.03

0.04
0.03

3.20

0.43

1.21

0.51
3.95

0.47
1.06

2.75

5.25

0.43

1.07

Dress Re i,t Spec i,t Income i,t ENO Distance i,t Network Distance i,t Age i,t R2

1.04
0.21 0.35

0.31
0.32 0.46

1.34
0.40 0.58

2.03 0.66

2.12 0.84

2.83 0.24
0.17

0.12

0.02

0.05

0.24

0.07
0.06

0.03

0.09 0.04

0.06
0.03

0.08
0.03

0.03

0.53
0.21 0.09

0.11
0.04 0.86

0.37
0.14 0.10

0.09
0.04 0.96

0.59
0.25 0.31

0.14
0.04 0.76

0.77 0.07

2.35

0.64

2.85

1.19

1.76

0.06

0.07

0.05

0.07

0.07

Table 6 Panel Data IV Tobit

This table reports the Panel Data estimates for the system of two equations using Full Information Tobit. We use Instrumental Variables to correct for the potential endogeneity of Dress Rehearsals and Special Events. 0 eq.1 : Gif ti,t = Gif t Ii,t (Gif t > 0) Gift = ( 0 + 1i ) + wi,t + g,i (t) i,t i,t i,t 0 eq.2 : Expendi,t = ( + ) + Z + e,i (t)
0 1i i,t

describes the binary decision Ii,t {0, 1} to become a donor at time t, with Gif ti,t > 0. The two left hand side variables in the system are the Gift Amount and the Total Expenditure. Fixed Eect i is an individual-specic xed eect parameter. N ew Total Attend i,t is the total number of performances attended. T otal P rod is the logarithm of one plus the percentage of New P rod Productions attended over Total Attendance. Dress Re are Dress Rehearsals; Spec are the special events attended; ENO Distance is the distance between the household and the theater; Network Distance is the distance between the household and the closest 500 donors; Age is the age of the individual. Since dress rehearsals can be attended only if one donates more than UKP 25, the estimation includes a projection of the dress-rehearsals on a set of instrumental variables. We instrument the consumption of dress-rehearsals and special events to correct for the potential endogeneity of the explanatory variables. We instrument the consumption of dress-rehearsals and special events to correct for the potential endogeneity of the consumption of special events and dress-rehearsals. We use their lagged values, and the following exogenous variables: income, age, ENO distance, network distance, othersdonation and others expenditure. The sample excludes the donations which are, in terms of size, in the top 2% decile. We do not considers those individuals that purchased more than 6 tickets for the same event. Standard errors are reported in parenthesis. A single (double) star stands for statistical signicance at the 5% (1%) condence level. Overall Sample z }| { Gift Amount Total Expend
Ii =1 if di >25

Cheap Seats z }| { Gift Amount Total Expend

Ii =1 if di >25 4.05

Expensive Seats z }| { Gift Amount Total Expend

Ii =1 if di >25

Const Fixed Eect i Total Attend i,t Gift Amount i,t

N ew P rodi,t T otal P rodi,t

5.49

31.92 7.23 1.01

2.68

5.37 3.54

16.31
3.23

1.69

6.37 7.14

40.67
4.62 3.56

2.58

4.72 2.94

2.38

1.16

5.82 0.96

2.76

9.72 0.08

0.98

0.23

0.0012

0.001

0.05
0.04 1.93

0.06
0.02

0.04
0.03 0.45

3.75

0.43

1.21

0.45
0.09

0.43
0.50

5.34

0.51

1.05

Dress Re i,t Spec i,t Income i,t ENO Distance i,t Network Distance i,t Age i,t R2

1.01
0.35 0.52

0.36
0.09 0.32

1.40
0.07 0.71

2.10 0.66

2.01 0.89

2.90 0.27
0.07

0.14

0.02

0.05

0.02

0.08
0.06

0.03

0.10 0.04

0.06
0.03

0.08
0.03

0.03

0.53
0.21 0.10

0.11
0.04 0.91

0.37
0.14 0.09

0.09
0.04 0.97

0.59
0.25 0.30

0.14
0.04 0.814

0.80 0.11

2.37

0.62

2.71

1.11

1.81

0.12

0.12

0.12

0.11

0.12

38

Table 7 IV Regressions for sample of Donors 25 Expenditure and Dummies

This table reports the results of the multivariate Tobit regressions of the size of the donations onto a set of explanatory variables. Total Perf Expenditure is the total amount spent in N ew tickets. T otal P erf is the logarithm of one plus the percentage of New Performances attended P erf with respect to the Total Performances attended. Spec are the special events attended. Dress Re are the dress rehearsals. We instrument the consumption of dress-rehearsals and special events to correct for the potential endogeneity of the consumption of special events and dressrehearsals. We control for the potential endogeneity of the consumption of dress rehearsals and special performances using instrumental variables. We use as instruments their lagged values, and the following exogenous variables: income, age, distance to the ENO, distance to the network of donors, the average consumption of of tickets of individuals not living in the same postcode district, the average donation of people not living in the same postcode district. The sample excludes the donations in the top 2% decile of the distribution. We do not considers those individuals that purchased more than 6 tickets for the same event. p values are reported in parenthesis.

Overall Sample const I96 I97 I98 I99 Tot Perf Expenditure ln
Exp N ew Exp T ot P erf

Cheap Tickets 0.4634

(37%)

Expensive Tickets 3.8550

(57%)

1.4647
(26%)

3.9090
(26%)

2.9485
(34%)

5.9573
(57%)

4.0637
(26%)

3.1934
(35%)

5.9043
(56%)

1.5679
(26%)

0.6637
(36%)

2.2793
(56%)

3.5703
(25%)

3.2946
(37%)

5.1476
(55%)

0.0322
(0.04%)

0.0338
(0.07%)

0.0301
(0.07%)

Cumulative Attendance Spec Perf Dress Rehearsals Income Agei,t Others Donation i,t R2

(0.0052%)

4.0629
(4.93%) (2.07%) (0.96%) (0.70%) 0.10

(0.0041)

2.4033 0.0457
(5.74%) (2.42%) (1.27%) (1.02%) 0.09

(0.0066%)

6.1611 0.0968
(4.77%) (4.22%) (2.27%) (1.42%) 0.30

0.0538 0.4932 0.2848 0.0901 0.80

0.4290 0.2766 0.1017 0.62

0.6537 0.2721 0.0796 1.11

0.36
0.29

0.23
0.15

0.78
0.57

0.12

0.16

0.10

39

Table 8 Excess Donation and Consumption Pattern

The excess donations, dened as the dierence between the actual donation (here Don) and the minimum amount for each donation class, are regressed on a set of explanatory variables. There are four main donation classes, Friends, Silver Friends, Bronze Friends and Gold N ew Friends, with donation thresholds equal to 25, 50, 100 and 175 respectively. T otal is the percentage of New Production attended with respect to the Total Attendance in both New and Regular productions. Standard deviations are shown in parenthesis. A single (double) star stands for statistical signicance at the 5% (1%) condence level.

Exogenous Variables: Endogenous Variable Friends

25 Don < 50

Const

Number Spec Events 0.14

(0.03) 0.19 (0.04)

Number Reg Prod 0.04

(0.01)

Total Num Perf

Number New Prod 0.07

(0.02)

New T otal

Number Dress Re 0.01

(0.02)

Income

34.56
(4.87) 34.92 (4.23)

0.04
(0.01)

0.35
(0.12)

(0.01) 0.06

0.61
(0.21) (0.20)

0.58

Bronze Friends
50 Don < 100

67.45
(5.89) 68.01 (5.26)

0.05
(0.04) (0.04)

0.05
(0.01)

0.10
(0.02)

0.01

0.05
(0.01)

0.27
(0.10)

0.19
(0.05) 0.17 (0.05)

0.54
(0.19) (0.21)

0.49

Silver Friends
100 Don < 175

131.40
(9.34) 131.96 (9.84)

(0.09) (0.25)

0.11 0.38

(0.08) (0.07)

0.01

0.11
(0.03)

0.01

0.56
(0.17)

0.06
(0.05) (0.08)

0.23
(0.09) (0.09)

0.18

0.21

Gold Friends
Don 175

252.61
(32.49) 255.54 (30.59)

(0.05) (0.04)

0.06 0.03

0.08
(0.05)

0.26 0.08 (0.05)

(0.09)

(0.03)

0.04

(0.10) (0.09)

0.15 0.14

0.47
(0.35)

0.07
(0.05)

40

Table 9 Average consumption at different times

This table reports the average consumption around the rst and last year of donation. We stratify the sample with respect to the event of donation and costruct four subsamples, depending on the sequence of donation events. Before Donation refers to the year before the individual made his rst donation. First Time Donors refers to the year in which an individual becomes a donor. Repeated Donors refers to the second consecutive year of donation. Interrupted Donors refers to the year an existing donor stops donating. The sample excludes all donors that are in the top 2% decile of the distribution and those individuals who purchased more than 6 tickets for the same event.

Before Donation

First Time Donors

Repeated Donors

Interrupted Donors

New Productions Regular Productions Percentage New Prod. New Productions Price Regular Prod. Price Dress Rehearsals Special Events

2.11 3.16 40% 14.48 18.88 -

2.57 2.69 49% 12.41 12.98 0.58 0.08

2.82 2.42 54% 14.17 12.48 1.20 0.15

2.85 2.98 49% 15.90 17.73 -

41

Table 10 New and Interrupted Donors

This table reports the results of regressions for those individuals that become donors for the rst time and for the interrupted donors. In panel A we consider the sample of individuals who were not donor at time t 1; in panel B we consider the individuals who were donors at time t 1 and that either stopped donating or continued donating at time t. The left-hand-side variables are changes over two consecutive years of characteristics of the attendance at an individual level. The variable AvgP r is the average price paid during the season; DR are dress-rehearsals; Dummy is a dummy variable: in Panel A, it takes the value of one if the individual is a donor at time t, i.e. if he started to donate; in Panel B it takes the value of one if the individual is not a donor at time t, i.e. if he stopped donating. The sample excludes donors that are in the top 2% decile of the distribution and those individuals who purchased more than 6 tickets for the same event. A single (double) star stands for statistical signicance at the 5% (1%) condence level.

Panel A: Non Donors in year t 1 Const i AvgP r(t)

P erf i NewP erf (t) T ot

Dummy 7.45
(0.30)

Income 0.0099
(0.0059)

DressR 0.0176
(0.0662)

1.74
(0.14)

0.11
(0.01)

0.07
(0.01)

0.0018
(0.0001)

0.0096
(0.0027)

i (N ew + Regular) i (N ew + Regular + DR)

0.23
(0.04)

0.14
(0.09)

0.0001
(0.002)

0.1509
(0.0041)

0.31
(0.04)

0.24
(0.09)

0.0030
(0.0018)

Panel B: Donors in year t 1 i AvgP r(t)

P erf i NewP erf (t) T ot

10.20
(0.40)

10.00
(0.37)

0.0099
(0.0098)

0.1982
(0.0354)

0.12
(0.01)

0.02
(0.008)

0.0015
(0.0003)

0.0001
(0.0012)

i (N ew + Regular) i (N ew + Regular + DR)

0.55
(0.09)

0.38
(0.08)

0.0029
(0.0022)

0.0190
(0.0088)

0.58
(0.10)

0.33
(0.08)

0.0001
(0.0023)

42