Insuring Your Donation: An Experiment

An increasing fraction of donations is channeled through donation intermediaries. These entities serve multiple purposes, one of which seems to be providing donors with greater certainty: that the donation reaches its intended goal, and that the donor may be sure to receive a tax benefit. We interpret this function as insurance and test the option to insure donations in the lab. Our participants indeed have a positive willingness to pay for insurance against either contingency. Yet the insurance option is only critical for their willingness to donate to a charity if the risk affects the proper use of their donation. Participants have a higher willingness to pay for insurance if, in case the risk materializes, they receive their money back. With this design of the insurance, almost no participant wants to donate if she is not insured.

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