A Portion of Profits to Charity

What is it about?

This paper shows the conditions under which a firm can raises its net profits by donating a portion of those profits to charity. Consumers value this donation and are willing to pay a premium for private goods linked to a charitable contribution. The model implies that firms in more competitive industries are more likely to find it profitable to make a charitable contribution. Under some circumstances, the charitable actions of the firms make consumers worse off.

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Why is it important?

The phenomenon of firms donating to charity is widespread. This paper provides a framework for understanding why we observe this behavior.