Information About Public Goods : Effects of Third-Party Ratings on Charitable Contributions

Private provision of public goods relies heavily on contributions to a wide variety of charities. But the quality of goods and services produced by charities is heterogeneous and essentially unknown to donors. To diminish the asymmetry, third-parties provide standardized information in the form of ratings. This paper bridges two relevant research areas, information disclosure and public goods, and isolates the effects on donations of one ratings group, using signals of 0-stars to 4-stars. One effect captures the change in a charity's contributions after ratings become available compared to before. The other effect characterizes the relationship between ratings levels and a charity's annual contributions. Using panel data for 5,400 rated charities, I estimate a higher star-rating significantly increases contributions. However, charities receive fewer contributions after being rated than before, from a negligible amount for 4-star charities to a 25% cut for 0-star charities. The results strongly demonstrate that voluntary giving responds to ratings