Contributions in heterogeneous communities: Evidence from Indonesia

Using household-level data from Indonesia, we investigate the importance of community characteristics: ethnic diversity and central government transfers, inter alia, in determining monetary and time contributions to community organizations. We present a framework in which ethnic diversity affects contributions through three channels: (1) diversity of preferences (2) transaction costs, and (3) inter-household considerations in the form of altruism towards ones ethnic group. Our empirical findings provide evidence that ethnic diversity has a negative and significant effect on contributions, and the prevalence of community organizations. We find evidence that government spending crowds out private monetary contributions, with a less robust effect on time contributions.All correspondence to Una Okonkwo Osili. The authors would like to thank RAND and Lembaga Demografi of the University of Indonesia for making the data available. We would also like to thank Victoria Beard and Chris Peterson at RAND for their assistance. We have also benefited greatly from discussions with Kathleen Beegle, Partha Deb, Kevin Hasker, Kay Ikranagara, Ifeanyi Osili, Richard Steinberg, Mark Wilhelm, and seminar participants at IUPUI, RAND, and LSU. Dan Du and Yang Wang provided valuable research assistance. Financial support from the Indiana University Center on Philanthropy is grateful acknowledged. Responsible editor: Daniel S. Hamermesh.