Two-Sided Altruism and Signaling
19 Pages Posted: 29 Jun 2015 Last revised: 24 Mar 2021
Date Written: June 2015
This paper shows that when donors and recipients care about each other --two-sided altruism -- the presence of asymmetry of information about the donor's income leads very naturally to a signaling game. A donor who cares about the recipient's welfare has incentives to appear richer than he is when the recipient cares about him. Similarly, asymmetry of information regarding the donor's income generates a signaling game in the presence of two-sided altruism. These signaling games put upward pressure on transfers and this pressure increases with the altruism of the recipient.
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