00:00:00
Pinar Yildirim: But we did look at
donations to other organizations as well. So let me tell you what
we did, and then we can jump
00:00:06
into the conclusion. So the
first thing we wanted to do, of course, is to understand how the
two types of donations move
00:00:12
relative to each other. So we
wanted to be able to, of course— in an ideal scenario, you would
like to be able to randomly just
00:00:19
move donations going into one
cause, and then see the impact on
the other. - Welcome to <i>The Ripple Effect</i>,
the podcast that takes you on a
00:00:27
journey through the minds of
Wharton faculty. I'm your host, Dan Loney, and in each episode,
we'll be diving deep into the
00:00:33
inspiration behind the
groundbreaking research that Wharton professors have
conducted and exploring how
00:00:40
their findings resonate with the
world today. - Well, certainly the
fall of 2024
00:00:46
will be remembered
as a unique time in and around the area of charitable and
political giving. Certainly we
00:00:51
are seeing a high level of
political giving right now with it being a presidential election
year, but you also now have the
00:00:58
impact of Hurricane Helene,
which will also lead to giving to various organizations looking
to help out those impacted by
00:01:05
the storm. But the question
which has been asked in the past, and that was being asked
again, is, does one impact the
00:01:13
other? Pleasure to be joined
here in studio by Pinar Yildirim, who is an Associate Professor of
Marketing here at the Wharton
00:01:19
School. She's been part of
research looking at the correlation between these two
types of giving. Great to see
00:01:25
you again. How are you? I'm wonderful. Thank you for
having me. So the research that you did shows
that there is an impact. Take us
00:01:32
through what you did and what
you found out. Well, we see significant amounts
of money go into political
00:01:38
donations. And naturally, we ask
this question. Why are we seeing so much money going into
politics? What motivates people
00:01:46
to give to politics? And can we
explain that in any way, maybe in relationship to charitable
giving, which we know a lot more
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about? And those are the type of
questions that we wanted to answer. It's an important year.
When we look at the numbers, we
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see these numbers going up
compared to the previous years. For example, if you were to just
look at the 2016 election year,
00:02:08
the presidential candidates were
collectively able to collect about $440 million in the first
12 months of the campaign. That
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number more than doubled in the
2020 election, going over $1.1 billion. So in general, we are
seeing this trend. This is for
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political giving. We also see
similar trends if you look at charitable donations. In— last
year, 2023, there were about
00:02:34
$550 billion going into charitable giving.
And that number is a significant hike
compared to what we used to see
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ten, 15, years ago. For example, in
2010, we used to see about $300 billion going into charitable
giving. So we asked this
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question again. What motivates
people to donate? So we wanted to understand again, the
motivations to giving. At the
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same time, also, wanted to
understand, if we start seeing potentially an increase in one
type of giving, what might be
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the impact on the other form of
giving as well? So that's what
we wanted to study.
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And so then what did you find out
in— and part of the research you looked at was focused on
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giving to the American
Red Cross, correct? Yes. Our focus, or at least our primary
data
00:03:25
was coming from the
American Red Cross. But we did
look at donations to other organizations as well. So let me
tell you what we did, and then
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we can jump into the conclusion.
So the first thing we wanted to do, of course, is to understand
how the two types of donations
00:03:40
move relative to each other. So
we wanted to be able to, of course— in an ideal scenario,
you would like to be able to
00:03:46
randomly, just move donations
going into one cause and then see the impact on the other. But
in real world, of course, being
00:03:53
able to see these effects in
random ways is almost impossible. So we looked at
events that happen in the world
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that almost randomly or random-
like fashion, increase the motivations to give to one type
of cause. And then we can look
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at the effects on the other. So
for natural disasters, right? If you think about it, these events
typically happen in very
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unexpected ways. They happen and
their devastation is usually not calculable in advance,
especially foreign disasters
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that take place in far away
lands. They can act as reminders to give to charity, or how
important donations to
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charitable organizations might
be at the time of giving. These events get plenty of, or ample
amounts of coverage on media,
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and therefore could increase the
motivations they give in giving to charity, at least in
temporary ways. So we took
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advantage of foreign natural
disasters, large disasters, and we looked at the increase in the
American Red Cross donations
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around the time of or in the
weeks that follow these natural events. And then at the same
time, looking at the Federal
00:05:00
Elections Commission data on
politics— on political donations, we looked at the
response in political giving as
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well. So what we have seen was
in the weeks— the six weeks, roughly, that follow a
large foreign natural disaster,
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you see about a 34 to 35%
increase in the American Red Cross donations, and the
corresponding decline in the
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political donations is about 18
to 19%. - Right.
- So just to summarize that, again, we see an increase
in charitable giving or
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disaster response giving, and then we see a decline
in the political donations.
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Does it happen to go the reverse way in a situation where you have a political event going on, and
maybe you don't necessarily have
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the natural disaster that occurs?
- Yeah. So exactly the same way of you
framing that question, we also
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wanted to understand the flip
side of the coin. If we start seeing, for example, events that
motivate giving to politics, do
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we see a response in charitable
giving as well? And again, finding events that will
randomly increase the
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motivations to political giving
is somewhat hard, but we can look at events that impact
individuals or voters in ways
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that are almost random. For
example, we can look at political advertising. We took
advantage of some of the
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characteristics or institutional
futures of political giving or the media markets. In general, in the
United States, if you want to
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buy advertising, you typically
buy them, especially TV advertising, by focusing on
geographic areas that are called
00:06:39
as "designated media market"
areas. Designated market areas, DMAs, these are areas that are
defined by the company Nielsen.
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And the boundaries of these
markets are typically independent of the
administrative boundaries. So
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what that means is you could be
living— or two individuals could be living on two opposite sides
of a designated market area
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boundary, and they could receive
very different amounts and very different types of political
ads. And we take advantage of
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those boundaries. We simply do a
comparison of the individuals who fall— again, somewhat
randomly— who fall on two sides
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of that boundary, and compare
how someone who might have been exposed to higher levels of
political advertising might be
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increasing or changing their
giving to politics, and at the same time, how that person
responds in charitable giving.
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And what we see is— just to
quantify that— about a 10% increase in the political ad
spending. So political ad
00:07:42
spending typically determines
what you can buy in, essentially, a market area. A 10% increase
roughly corresponds to about a
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0.2% increase in giving to
politics, and at the same time, a 0.4% decline in giving to
charity. So the amounts look
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slightly maybe different in
terms of the magnitudes. But if you actually do a calculation, a
comparison of how charitable
00:08:10
giving responds to increase in
political events, and do the opposite— how political giving
responds to to these charitable
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or disaster events— we see
somewhat comparable responses. Do people— you mentioned the
historical numbers in terms of
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total giving. Do people feel
like their money has more of an impact now than maybe they did
20, 30 years ago? Or is it, you
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know, just kind of the natural
course of— of the funds that we have available to us, that
we're willing to give to either
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case? Whether it be political,
whether it be a charitable donation as well.
- Yes.
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- Do people feel like
there— it has more of an impact these days? Yeah. So if we reframe your
question, I think we should ask
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what might be the motivation to
giving, or what might be explaining, potentially, the
substitution that we observe.
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And one sort of simple explanation
could be that people have limited budget. And as they
start giving to one cause, they
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start decreasing the amount for
another cause. That, of course, is an explanation that we cannot
rule out for everyone, right?
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There could be some individuals
who, indeed, just because of budgetary considerations, start
giving to one cause and
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start taking away from the other
one. But we did look at spending or the response in other items.
For example, we looked at how
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retail spending, or spending on
on groceries, or spending on lottery items, lottery tickets,
etc, which tend to be a lot
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more, you know, hedonic type of
spending— we looked at how people's other spending response
to the— both the political
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giving, as well as the charitable
giving. So while we cannot rule out, of course, individuals
giving because of budgetary
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considerations, one thing we
have done is we looked at also spending in other categories.
For example, we looked at retail
00:10:06
spending. We looked at grocery
spending, we looked at buying lottery tickets— which, of
course, is not something that
00:10:13
you have to do, right? It's
something that you can— you can decide to buy. We did not see
the same response. When we look
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at, for example, the increase in
charitable giving, you do not see a decline in the spending
items of these sorts. So we
00:10:31
therefore think that it should
not— or the substitution that you observe— should not be solely
explainable by the budget
00:10:38
considerations. But there could
be other motivations that are potentially driving the pattern
that we observe. Now, one
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potential explanation is
something that relates to charitable giving. When you look
at motivations for charitable
00:10:52
giving, typically, the
literature will put those motivations in two very broad
buckets. One is the idea that,
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"I'm very altruistic. I really
want the betterment of others. I care about the welfare of
welfare of others, and therefore
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I give, right? I give because I
want you to be better." - Right. - The other set of motivations
typically fall under impure—
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impure altruism, or what the
economists and the academics like to call "warm glow". "I give
because it makes me feel good."
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- Sure. - "I give because I get some
kind of status out of giving. Maybe I'm recognized as a donor
somewhere, or I feel good about
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myself because I do something
good for others." So for the individuals who are giving
primarily because of the impure
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altruism or "warm glow"
motivations, you don't really care if, ultimately, the money
that you're giving is helping
00:11:45
others to recover from a
disaster, or doing something. So if the motivations for giving to
the two types of charities, or
00:11:54
if the primary motivations of
giving is "warm glow" or feeling better about yourself, you could
feel better about yourself from
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giving to to charity, and you
might get a similar enjoyment, similar utility, out of giving to
politics as well. So if
00:12:11
motivations are "warm glow", we
could potentially explain why people give to one cause
versus the other.
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So the political cycle is unique in
this process, because obviously it's not just the day or the
week before the election. It's
00:12:26
obviously a long run-up process
in order to get to that point. And as you mentioned before,
there's a lot of political
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advertising that will be on
different platforms. That, I would assume, has then an impact, kind
of in a longer framework, on how
00:12:43
people think about their giving
at that particular time. Whether they're giving to a political
campaign versus a charitable
00:12:49
giving. And I'm wondering if it
has a longer impact, potentially to the detriment of the
charitable organization, that
00:12:57
they lose out on funds from
individuals over a longer period of time, because that election
cycle is such a longer cycle.
00:13:04
Yeah. So I hear, I think, three
sort of separate questions in what you just asked. One is, of
course, the idea of, is there
00:13:13
any difference across the time
period? For instance, going into getting closer to the elections,
do we see a different level of
00:13:20
impact? Because of the
aggregation in our study of the time periods, we wanted to look
at donation response over a
00:13:28
number of weeks. We don't
necessarily observe— we were not able to observe these type of
differences. But certainly, I
00:13:35
could speculate that if somehow
we are sending more reminders about the importance of donating
to politics to individuals, or
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if we are elongating the periods
over which people are constantly reminded of the need to give to
politics, that could have a
00:13:52
negative impact on the
nonprofits that are trying to raise money for charitable
causes, as well as the victims
00:14:00
of these disasters. Because
they're not going to be able to receive the same level of funds
00:14:05
that they could have received
otherwise. What do you think were your most
important takeaways in looking
00:14:10
at these components of giving
from the outside? So I think a couple of important
takeaways. First, we want to
00:14:19
understand the motivations to
giving to politics. Because, as I mentioned earlier, this is not
entirely clear. It's relatively
00:14:25
understudied compared to
charitable giving. We understand the motivations to give to
charitable giving, but we don't
00:14:30
know what political
donations are really for, or if it— some— some academics, some
researchers, suggest that people
00:14:40
give because they expect
something in return, right? This is an instrumental motivation.
You're donating because maybe
00:14:47
you think that the politician
will return that favor. - Sure. In the future.
Or some others
00:14:52
suggested
that people give because they think it's their civic duty.
Others suggested that people
00:14:57
give because they get some
consumption value out of that. So there could be different
explanations, of course, or
00:15:03
different suggestions as to why
people give. But it's important to underline the common elements
with charitable giving. And I
00:15:09
think that's one of the first
things that we do. We see that these forms of giving are
substitutes. The second, I
00:15:17
think, important takeaway for us
is the relative negative impact of these two forms of giving on
the other. Right? So we are
00:15:27
observing that if there is an
event that drives charitable giving, disaster giving in
particular, we will see a
00:15:35
negative impact on political
donations. And that's not just coming from the budget effect.
That seems to come from other
00:15:42
factors as well, just like the
"warm glow" effects that motivate people for giving. To quantify
that, we see that if there is an
00:15:49
increase of $1 that goes to
charitable giving, that results in about a 42 cent decline in
the political donations.
00:15:59
Now looking at the other side,
we also see that political events that drive political
giving could have a negative
00:16:05
impact on charitable donations.
And that could be potentially a negative outcome for both
nonprofits as well as disaster
00:16:13
victims. To quantify that
effect, we see that if there is a $1 increase, or events that
drive political donations result
00:16:21
in a $1 increase in political
giving, that corresponds to about a 33 cent decline that's going
to their charitable giving. So it's
00:16:30
a sizable amount, and I think we
need to be aware of these potential responses that come
from the other causes of giving.
00:16:38
And a third thing that we
discuss at the end of our study which we care about is this
question about the effect of
00:16:45
money in politics. Right? As we
were starting, I mentioned that the political donations are
increasing. A non-significant— non-
00:16:55
trivial amount of those
donations come from individual donors, and that seemed to— seems
to have increased over the last
00:17:01
election cycles as well. So the
question comes down to, should we think about— rethink— about
the policies that restrict
00:17:10
giving to politics? Is this too
much money? And if there's too much money or too many political
donations, does that really
00:17:19
change the electoral dynamics in
some way. Right? Could it be potentially benefiting some
politicians more than others?
00:17:26
And in discussing this topic,
typically, we care about a concept called incumbency
advantage. I think for our
00:17:33
listeners, it might be
potentially a familiar concept, but in brief, it just simply
describes this idea that
00:17:40
politicians who have access to
resources, who have been in an office before, who have been
elected before, who essentially
00:17:47
are an incumbent, they tend to
get re-elected again and again when you look at the United
States elections, as well as in
00:17:54
other countries as well. We
don't like the idea of incumbency advantage too much
unless the incumbent gets
00:18:00
elected again and again because
they are the better candidate. We don't like it if it's coming
from some resource advantage,
00:18:06
because that means we have less
competitive elections, and some of the really good candidates,
potentially high quality
00:18:13
politicians, they may not be
able to to get ground. They may not be able to get elected, and
they may not eventually be able
00:18:20
to benefit the public with their
policies. So looking at the question of money, right, small
and large amounts of money that
00:18:28
go into donations, and how that
potentially influences incumbency advantage, that's
also something that we do in
00:18:34
this study. And here, charitable
donations are really useful, or disaster events are really
useful because they create an
00:18:43
exogenous or unexpected change
in the money that goes to politics. Therefore, we can look
at the response in terms of the
00:18:52
electoral chances of incumbents
and challengers. And perhaps surprisingly, or at least
differently from some of the
00:19:00
earlier studies in the
literature, we find that actually more money in politics
is not necessarily bad. When we
00:19:07
look at the chances of getting
elected by an incumbent as well as a challenger, we see that if
we can increase the total pot of
00:19:16
money— that is, if we can have
more donations, more money going into politics, we actually are
able to increase the chances of
00:19:24
a challenger getting elected. So
about a 10% increase in donations results in about a 3.6
percentage point, if I recall
00:19:33
correctly, increase in the
chances of a challenger getting elected. Which, again, if we
believe in more competitive
00:19:40
elections, where everybody has
the chance to go and run and get elected, which should be a
positive outcome for the society.
00:19:48
Pinar, great to have you with us,
and to go over all of this. Thank you very much.
00:19:52
Thank you so much for having me. You got it. Pinar Yildirim,
Associate Professor of Marketing
00:19:56
here at the Wharton School. Thank you for listening to <i>The Ripple Effect</i>. We hope you found
this episode informative and
00:20:02
engaging. Don't forget to
subscribe and leave us a review so that we can continue to bring
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00:20:09
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