Decision Making of Private Provision of Public Goods and Charitable Investment- A Game Theoretic Analysis

Abstract

This paper aims to provide theoretical insight into the relationship between private voluntary contribution and risky portfolio investments of charity organizations. To analyze this relationship, we will implement a three-stage non-cooperative game with two economic agents: the donor and the charity. The choices of the economic agents in the first two stages of the game are determined endogenously with the expectation that the opposite economic agents will react rationally in the following stages. We find that donors do in fact care about the investment strategies that charities employ, and that individuals’ initial giving does not necessarily negatively correspond with the aggressiveness of a charity’s investment strategy, which is measured by the proportion invested in the risky portfolio.