Income risk and the voluntary provision of public goods

Abstract

This thesis investigates how charitable giving and voluntary contributions to public goods are affected by the presence of income risk. Previous empirical work has used micro data to measure income risk, finding evidence of a negative effect of risk on charitable giving. Rather than attempting to use a proxy to measure income risk, this thesis uses an experimental approach to control for income risk by including risk into individual endowments while conducting a public goods experiment. The results show that individuals do not base their decisions on the expected value of their endowment. Instead, individuals ignore the probabilities of potential outcomes, and focus on their maximum potential endowment when making their contribution decisions.