In terms of the debate about the role of tax incentives in giving, there exists a body of technical, econometric literature that tries to answer the question of precisely how much those tax incentives matter. You can read a pretty good summary of this work here: http://www.urban.org/publications/310256.html). In my opinion, there is fairly convincing evidence that tax deductions and incentives matter in terms of how big a gift (not in whether there is a gift or not) and to wealthier people (keep in mind that a whole group of people don’t owe income tax or don’t itemize and so don’t receive any tax benefit). The evidence beyond that is debatable.

One last thought - and this is more to Sean’s initial point - when the quoted auhtors say, “economics tells us that the dominant motivation is the internal satisfaction that individuals derive,” they are making a claim they can’t support. Economics doesn’t “tell us” that or prove it at all.

As an academic discipline, economics is a theory of how the world works that is BASED on the ASSUMPTION that people are selfish and that, when they are free to choose, they will always choose to allocate their scare resources (both time and money) in a way that maximizes their personal utility/happiness. It’s a view of the world that is predicated on the belief that the dominant motivation in all actions is internal satisfaction. The “warm glow” and “prestige” arguments are theories that evolve when you apply the assumption that humans are selfish by nature to charitable behavior. Economics cannot tell us or prove that these are “the dominant motivation” - it offers us no tools for getting inside a person’s head or heart.

Personally, I think economic assumptions about human nature are largely accurate but also imperfect. Altruism is a puzzle economists can only solve by making it about the individual again, and I think that simplifies the reality of giving in a less than honest way. I think Sean’s description is a bit closer to the reality. But an economist who adheres to the discipline’s assumptions about human nature has little room for Sean’s understanding of giving.

Buffet has talked extensively about the reason why he chose the Gates Foundation as the recipient of his wealth, but I think that we still know surprisingly little about what motivated the “charitable intent” that gave rise to the gift. Sean, do you have any links to Buffet’s comments on this?

Jeremy Gregg, Editor
The Raiser’s Razor
http://theraiser.blogspot.com

You would think that if he merely wanted to avoid paying taxes, he would have found a way to do that without giving up the money, as I do not think he is a stupid person and I am sure he could have found a way if he wanted to.

No, I do not believe that was the reason he gave the money.

I think donor efficiency is important, whether you’re giving $50 or $50 million, you want it to make a difference. If you have lots to give, the greatest satisfaction might come out of big investments in large NGO’s that might catalyze big societal transformation. But if you have $50 to give, it just feels like it all goes to overhead.

Of course we also need the million $50 donors to give to the large NGO’s in order for them catalyze societal transformation too, so I don’t want to discourage that. But if we are talking about why people give and how they derive satisfaction, well, it’s more satisfying to me to know that one person is better off because of my $50. I’m not suggesting that’s the BEST use of my $50, just the most satisfying.

I wonder though if there is a way to reconcile the type of gift that gives you the most satisfaction and the gift that does the most good. $50 to a big international NGO might do more good than $50 to sponsor a child.

Imagine if you only ate food that gave you the most immediate satisfaction, but didn’t pay attention to what food was best for you?

See this story for an example of how powerful this can be: http://lenovoblogs.com/heartofbusiness/?p=107

Another thought… If I understand taxes correctly (and there is no reason to think that I do), it would be insane for somebody to give to charity to avoid taxes. The tax advantage of giving a billion dollars is roughly $350 million. I’m pretty sure Mr. Buffett would consider giving a billion to avoid 350 million in taxes to be a bad investment. There must be something else at work (or a tax law with which I am not familiar, as Mr. Buffett and I are in different brackets).