Wednesday, October 6, 2021
A new paper entitled Information Acquisition, Inventory Levels, and Tax Incentives for Charitable Giving by Anil Arya, Tyler Atanasov, Brian Mittendorf, and Dae Hee Yoon looks at benefits enhanced inventory charitable giving incentives provides to firms. Bottom line: enhanced deductions for donating inventory ensure corporate giving is about much more than publicity and can help facilitate more economic efficiency, for consumers & charities alike.
The Abstract reads as follows: "Many of America’s top corporate donors share a common feature: the bulk of their giving is in the form of in-kind products, not cash. This phenomenon is not a coincidence but rather a result of the tax code creating such a preference due to an “enhanced” deduction for inventory donations. In this paper, we utilize a parsimonious model of inventory choice under uncertainty to demonstrate that enhanced tax deductions not only promote giving, they also promote better learning of consumer demand for products in the retail market. An inventory stockout curtails a firm’s learning of precise consumer demand since the firm’s sales volume only reveals that the underlying consumer demand exceeded the inventory level. Tax incentives for donations of excess inventory encourage a firm to boost its inventory stocks which, in turn, boosts the firm’s learning of consumer preferences. Accounting for this informational role of tax incentives, the paper derives charitable giving patterns, socially-beneficial tax policy, and firms’ information acquisition choices."