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Abstract

Charity corruption scandals cause sharp declines in donations. When deciding about charitable contributions, donors are influenced by the actual share that ultimately goes to the intended recipients; however, they are also impacted by the potential veiled cost that may come from legitimate administration and advertisement costs or in some cases from unethical expenditures or corruption. Therefore, donors are confronted with a tradeoff between helping people in need and the possibility of being cheated. Individuals may justify not giving by using a self-serving biased belief that the fundraisers are corrupt. In a laboratory experiment, we find evidence that participants are more likely to exploit the shadow of fundraising cost to bias their belief and contribute less when the incentive for selfishness is greater. Further, the charitable contribution significantly increases when the moral excuse is removed by excluding the possibility of fundraisers’ manipulation of the costs.