Alumni donations and colleges' development expenditures: does spending matter?

American Journal of Economics and Sociology, The,  Oct, 1995  by Willian B. Harrison,  Shannon K. Mitchell,  Steven P. Peterson

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Our own view is that the need for recognition provides a motive for giving. This is closely related to the idea that many human actions are explained by a need to seek status (Coelho, 1985 and Coelho and McClure, 1993). This need is possibly rooted in the drive to procreate, since one may better achieve that goal if one's attractiveness is enhanced by status (Dawkins, 1989). It is interesting to note that social scientists have tried to explain the willingness to donate both in terms of a desire to be more like others, as in the peer pressure theory, and to distinguish oneself from others, as in the status theory.

If people do have such a need to seek status or recognition, why seek it from an educational institution? Sociologist Burton Clark provides a rationale in his book, The Distinctive College. An institution may succeed in creating an "organizational legend", such that graduates strongly identify with the school's history, culture, and mission. While only a fraction of schools seem to fit Clark's description exactly, probably many schools are able to foster a less intense, yet positive, emotion of fond memories. Such feelings of respect and fondness give rise to the desire to be recognized by the institution, and hence the motive for donating. However an entirely different approach to studying giving examines the tax incentives for giving by Clotfelder and Feldstein, (1986) should be noted.

Yoo and Harrison (1989) analyzed educational giving in a market context and estimated demand and supply equations for giving. In that study, donors demanded sponsored activities, information, and recognition which colleges supplied. The price was represented by dollars of donations per donor, common to both donor and recipient. The quantity was represented by the cost of fund-raising per dollar donation. This model was tested with data from a limited number of mostly private, small New England schools. Demand was found to be unit elastic with respect to a per person donation. In other words, if the price fell, donors would increase their donations by a matching percentage. The supply side seemed inelastic, meaning that schools do not in crease their supply of recognition very much when the average donation rises.

Other recent work explains the proportion of alumni who donate as a function of fund-raising effort, use of other resources, and donor wealth (Harrison, 1995). The probability that an alumnus will give is found to increase with spending on alumni relations.

A class of literature which is of particular interest to college presidents and development officers deals with the characteristics of alumni. Testing a life-cycle hypothesis with respect to alumni giving to a small liberal arts school, Olsen, Smith, and Wunnava (1989) found that the growth rate of donations coincided with the age-income profile of donors and became negative at their retirement age. In a similar "age-donation" profile of over four thousand alumni of a large public university, Okunade, Wunnava, and Walsh (1994) estimated that growth rates of alumni donations decline after age 52, short of retirement age. They also found larger donations from business school graduates, members of non-Greek social organizations, and alumni who proceeded to graduate work in the same university. Grimes and Chressanthis (1994) studied the effect of intercollegiate athletics on alumni donations at a Division I NCAA school. They found that a winning season and television appearances stimulate alumni giving.