Could Government Measures Crowd Out Grassroots Philanthropy? Empirical Evidence from an Education Crowdfunding Platform

Abstract

Over the last two decades, grassroots altruism, enabled through platforms such as DonorsChoose.org, has resulted in successful funding of innumerable and essential public school projects across the country. While such channels become critical fundraising mechanisms, there is an unintended possibility of crowding out of these sources by governmental initiatives which aim to shed light on, and address public school resource deficits. In this study, with a focus on major public policy announcements, we examine whether there is an unintended effect of external measures, such as the signing of the Every Student Succeeds Act (ESSA), on grassroots altruism, which is possible to examine on online philanthropy platforms. We surmise that, in such platforms, donors could become complacent and take comfort in the cognizance of an external agency addressing the problems they care about -- we call this the “savior effect”. Importantly, from our analysis of panel data on the platform, we find that the savior effect: (a) results in declined donations toward under-served public school projects on the platform, and (b) makes donations more local, disproportionately impacting schools with high concentrations of low-income and minority students, which receive fewer instructional resources to begin with. Our work has important policy implications for public schools, donor communities, and online fundraising platforms.