EFFICIENT LOCAL CHARITY WITH SELF-SELECTION

How is charitable giving within a city influenced by the prospect of d onor and recipient migration? The theoretical literature on charitable contributions in a closed economy has mainly argued that the market l evel of private giving will tend to be lower than optimal, wherever th ere exists a local fiscal externality between donors and recipients. I nterjurisdictional models of voluntary redistribution, on the other ha nd, abstract from altruism to explore the interjurisdictional fiscal e xternality resulting from the failure of one community to account for the migration impacts of its actions on other communities. This paper integrates and extends both literatures by allowing for local altruism among the mobile residents of a system of local economies. Within a s ingle community, mobility thus introduces adverse selection considerat ions for each donor via the migration of both recipients and other don ors. Moreover, any change in the local transfer level influences both equilibrium wages and donor behavior system-wide. The analysis demonst rates that the market level of local charitable giving will be lower t han is either 'locally' or 'globally' optimal in some cases and plausi bly higher than optimal in others, depending on the effect of migratio n and expectations on wages. The self-selection nature of donor decisi on making does eliminate the usual interjurisdictional fiscal external ity, though it leaves a role for government intervention via subsidies to altruistic behavior.