Inefficient but effective? A field experiment on the effectiveness of direct and indirect transfer mechanisms

We conduct a field experiment on direct and indirect transfer mechanisms. It shows that people are willing to donate significantly more if the donation is indirect, i.e., it is tied to the purchase of a good with a price premium, rather than made directly. This points to an efficiency–effectiveness trade–off: even though indirect donations are less efficient than direct donations, they are more effective in mobilizing resources. Our findings hold for ‘Fair Trade’ coffee as well as for ‘normal’ coffee. However, the strength of the efficiency–effectiveness trade–off is higher in the case of ‘Fair Trade’.